House price deflation in May was the biggest since September 1986, Absa’s House Price Index released on Monday showed.
In nominal terms — where the effects of inflation have not been accounted for — year-on-year house price deflation started in December 2008, Absa’s Jacques du Toit said.
In real terms — where the effects of inflation have been factored in — prices have been declining on a year-on-year basis since January 2008, he said.
The average nominal price of middle-segment housing was down by 3,6% year-on-year to R932 000 in May 2009, after declining by a revised 3,2% year-on-year in April, the index showed.
The May price decline was the biggest since September 1986, when it was also -3,6% year-on-year.
On a month-on-month basis, nominal house prices were 0,5% lower in May compared with April.
”These trends contributed to nominal house prices in the middle segment to be R35 300 lower in May 2009, after peaking at R967 300 in May last year,” Du Toit said.
Middle-segment house prices were down by a real 10,7% year-on-year in April, after declining by a revised 10,2% year-on-year in March.
”This was the biggest real year-on-year price decline since September 1992,” Du Toit added.
Real house price calculations are based on the consumer price index (CPI) for all urban areas, available from January 2008, as published by Statistics SA and used by the SA Reserve Bank for monetary policy purposes.
Before this date the calculations are based on the historical CPI for metropolitan areas, linked to the CPI for all urban areas.
In the category for small houses, the average nominal price dropped by 4% year-on-year in May 2009, after a revised -3,2% year-on-year was recorded in April.
”This brought the average price of houses in this segment to about R658 200,” Du Toit said.
In real terms prices dropped by 10,7% year-on-year in April.
The average nominal price of medium-sized houses declined by 2% year-on-year in May 2009 which brought the average price in this category of housing to about R930 000.
The average price of medium-sized houses was down by a real 9,6% year-on-year in April this year, Du Toit said.
The average nominal price of large houses declined by 3,5% year-on-year to about R1 344 400 in May 2009, after declining by a revised 3,6% year-on-year in April.
”This caused the average price of a large house to be R53 200 below the peak of R1 397 600 reached in March last year,” Du Toit said.
Prices of large houses were down by a real 11% year-on-year in April 2009, after declining by 10.9% year-on-year in March.
”The South African economy is currently in a recession … this is the first domestic economic recession since 1992, with the sharpest decline in real gross domestic product on record since the third quarter of 1984,” Du Toit said.
He added that the economy was expected to record negative real growth for the full year, after growing by a positive real 3,1% last year.
”Despite the 450 basis points worth of interest rate cuts since December last year, the residential property market is expected to remain depressed until late 2009 on the back of an underperforming economy, impacting employment, household income, consumer confidence, and the demand for housing.”
Du Toit added that the housing market was forecast to continue to experience relatively low levels of activity as well as downward pressure on prices until late 2009, with house prices projected to decline by 3% to 4% in nominal terms this year.
”In real terms prices are forecast to drop for a second consecutive year in 2009.” – Sapa