In reporting a dip in both December to 13,5% (14%) and overall in 2006 to 15,2% (22,7% in 2005) Absa’s senior economist, Jacques du Toit, said that growth in 2007 could be expected to continue the downward trend to 9% before improving again in 2008.
House-price growth in 2004 was at a much-higher 32,2%, while the dip in December 2006 was reported to have brought the average price of a house to R857 400.
In real terms, year-on-year growth of 8,2% was recorded by Absa in November compared with a revised growth rate of 8,4% in October, based on the headline consumer price index. Average real year-on-year house price growth of 9,7% was recorded in the first eleven months of 2006.
“With CPIX inflation on a upward trend since mid-2006 and inflationary pressures still present in the economy, interest rates are expected to increase further by a total of 100 basis points in the first half of 2007. This will bring banks’ prime and variable mortgage interest rates to a level of 13,5% by the middle of the year.
“Against the background of higher inflation and interest rates, real economic growth for 2007 is forecast to be somewhat lower than in 2006, which will also contribute to slower growth in real household disposable income this year,” stated Du Toit.
“In view of these developments and expectations, nominal house price growth is projected to continue its downward trend of the past two years for most of 2007. Year-on-year growth of about 9% in house prices is forecast for this year, with prices set to rise by around 3% in real terms. With interest rates forecast to move to lower levels again in 2008, house-price growth is expected to improve and increase to above 10% during that year and into 2009,” concluded the economist.
Absa is South Africa’s biggest mortgage lender and their House Price Index is based on the total purchase price of houses in the 80m² — 400m² size category, valued at R2,7-million or less in 2006, including improvements, and the figures are smoothed to prevent distorting effects. – I-Net Bridge