/ 10 March 2010

Absa: House prices are on the rise

Absa's house price index indicates that the average nominal price of houses was higher in all categories in February compared with a year ago.

The average nominal price of houses was higher in all categories in February compared with a year ago, Absa said on Tuesday as it released its house price index.

“The average nominal value of homes for which Absa approved mortgage finance increased further in February 2010, with all three categories of housing, as defined by Absa [small, medium and large], recording a positive nominal year-on-year rise in values,” said Jacques du Toit, senior property analyst.

In real terms, however, house prices were still lower in February compared with a year ago.

Nominal refers to the price where the effects of inflation have not been accounted for, while the real price accounts for the effects of inflation.

“With CPI [consumer price index] inflation trending down further in recent months, house prices continued to contract at a slower pace in real terms up to January this year,” Du Toit said.

He said the average nominal value of medium-sized houses increased by 2,2% year-on-year in February, after a revised increase of 1% year-on-year was registered in January.

“This brought the average nominal value in this segment of housing to a level of around R953 600 in February.

“After adjustment for the effect of inflation, the average value of medium-sized houses was a real 4,9% year-on-year lower in January, after a decline of 6.2 percent year-on-year was recorded in December 2009,” he said.

Domestic growth expected
After emerging from recession in the second half of 2009, the South African economy was expected to grow by a real 2,8% in 2010, mainly driven by the recovery in the global economy, while domestic demand was expected to gradually pick up from the levels of last year.

Du Toit said the Fifa World Cup was set to boost domestic economic activity around the middle of the year.

CPI inflation slowed down marginally to 6,2% year-on-year in January, from 6,3% year-on-year in December, and was forecast to be below the six percent level on average in the first quarter of the year.

“However, the electricity price hike of 24,8% for 2010/11, announced in February, remains the major threat to the inflation outlook for 2010.

“Against this background, interest rates are projected to remain unchanged up to late this year before being raised by 50 basis points in an attempt to keep CPI inflation below the 6% level,” Du Toit said.

With the economy recovering and employment increasing up to the end of last year, which would support growth in household disposable income, the residential property market was expected to gather further momentum in 2010.

“Growth in the nominal value of houses is forecast to be around 6% higher in 2010 compared with 2009,” Du Toit said. — Sapa