Absa's report indicated that house price growth was on the decline as a result of rising headline consumer price inflation, currently at 6% year on year (y/y).

The bank said that nominal house price growth of around 2% was forecast for the full year of 2011, with price growth expected to remain relatively low in 2012.

The average real price of middle-segment houses, calculated at constant 2008 prices, was, in October, as much as 13.6% below the peak of August 2007. This was caused by average nominal house price growth being below the average headline consumer price inflation rate during this period.

Average nominal house prices in the various segments in November 2011 were R709,500 for small homes (80 square metres-141 square metres), R1,007,100 for medium-sized homes (141 square metres-220 square metres), R1,512,700 for large homes (221 square metres-400 square metres).

The South African economy recorded real annualised growth of 1.4% in the third quarter of 2011, after growing by 1.3% in the second quarter and 4.5% in the first quarter of the year. Absa said that real growth of around 3% was expected for the full year, forecast to rise only marginally in 2012 against the background of the outlook for the global economy.

Headline consumer price inflation (CPI) was forecast to marginally breach the 6% level by year-end and for part of 2012, driven by rising food prices, transport costs and property running costs.

Despite headline CPI expected to be above the upper limit of the inflation target range of 3%-6% in 2012, interest rates were projected by the bank to remain low for most of next year in view of global economic trends and the possible impact of these developments on the domestic economy over the next twelve months.

Against the background of economic developments during the course of next year, the short- to medium-term performance of the residential property market and demand for mortgage finance will be driven by the state of consumer finances and credit records, as well as trends with regard to consumer confidence.

In real terms, i.e. after adjustment for the effect of inflation, house prices are set to decline further towards the end of the year and into next year, based on average nominal price growth expected to be below the average headline consumer price inflation rate during this period.