Houses hurting as inflation outpaces property prices

House prices are not growing in line with inflation, according to Absa’s latest property price indices released on Monday.

“The average real price [at constant 2008 prices] of houses in the middle-segment of the market was in September this year about 13% below its peak of mid-2007,” Absa Home Loans property analyst Jacques du Toit said in a statement.

“This was the result of average nominal house price growth being below the average headline consumer price inflation rate during this period.”

In nominal growth, the effects of inflation are not taken into account, while real prices factor in the effect of inflation.

Du Toit said that in real terms annual price deflation continued across the small, medium and large housing segments up to September 2011.

This was impacted by rising consumer price inflation which reached 5.7% year-on-year in September.

The average nominal house price for a small property (80m²-141m²) in October was R734 800.

A medium-sized home (141m²-220m²) had an average nominal price of R1 009 500.

Large homes (221m²-400m²) had an average nominal house price of R1 475 800.

Du Toit expected the South African economy to grow by a real 3.1% this year and by 3.4% in 2012.

“Based on house price trends up to October this year, and the outlook for the economy and the household sector, nominal price growth in the middle segment of the housing market is projected at between two percent and 2.5% for the full year of 2011,” he said.

Du Toit expected price growth to improve in 2012, but to remain below 5% in nominal terms.

“However, in real terms, house prices are set to decline further towards the end of the year and into next year, affected by rising headline consumer price inflation, which is forecast to marginally breach the six percent level by late 2011 and for part of 2012.” — Sapa

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