House price growth is expected to resume its slowing trend this year due to slower economic growth and the lagged impact of last year’s interest rate hikes, a property strategist said on Monday.
John Loos, property strategist at FNB commercial banking, said that a more sustained strengthening was only anticipated from 2008.
His comments come amid data that pointed to a mild growth in house prices towards the end of 2006 after decelerating uninterruptedly between September 2004 and September 2006.
According to Absa’s house price index, house prices fell from 35,6% during the two-year period ended September 2006 to 14,4% before picking up to 15,4% in February 2007.
Loos said that the mild uptick in Absa’s house price inflation, as well as the South African Reserve Bank’s detailed mortgage advances data, supported the notion that residential property market underwent a period of short term strengthening for a part of last year.
“However, the slower rate of economic growth, and the lagged impact from last year’s interest rate hikes, is expected to see a resumption of slowing trend during 2007, and a more sustained strengthening is only anticipated from 2008 on,” said Loos.
Loos cited the belief that 2007 will be a slower economic growth year, less personal tax relief and no real transfer duty reduction as factors that would lead to slower house price growth.
He added that when interest rates turn down once more, or when economic growth turns upward as anticipated in 2008, it was fairly reasonable to expect a strong demand for new houses from South Africa’s growing middle class, leading to house price inflation. – I-Net Bridge