ABSA House price growth slowing down

Posted On Monday, 10 June 2013 12:02 Published by Commercial Property News
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House price growth slowed down in May 2013, based on nominal year-on-year growth in the average value of homes in the middle segment of the South African residential property market.

ABSA House Price May2013

This is the result of base effects and a downward trend in monthly price growth since mid-2012, which was expected to eventually cause year-on-year price growth to moderate. These trends are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes (see explanatory notes).

May 2013 saw middle-segment nominal house price growth tapering off to 11,1% year-on-year (y/y) from a revised growth rate of 11,7% y/y in April. Lower year-on-year price growth was evident in especially the small and medium-sized categories of the market, with month-on month price deflation occurring in both these segments of housing. Price growth in the segment for large homes appears to be at an upper turning point. Real price growth in middle-segment housing, i.e. after adjustment for the effect of consumer price inflation, was recorded at 5,5% y/y in April in view of an inflation rate of 5,9% y/y in the month.

The average nominal value of homes in each of the three middle-segment categories was as follows in May 2013:
 Small homes (80m²-140m²): R720 600
 Medium-sized homes (141m²-220 m²): R1 061 800
 Large homes (221m²-400m²): R1 625 900

Real economic growth came in at a seasonally adjusted annual rate of only 0,9% in the first quarter of 2013, after growth of 2,1% in the final quarter of last year. Contractions in the real value added by the agricultural, electricity gas and water and manufacturing sectors contributed to the
low first-quarter growth. The South African Reserve Bank expects real growth of 2,4% in 2013, improving to 3,5% in 2014. The headline consumer price inflation rate, at 5,9% y/y in February, March and April, is expected to breach the upper inflation target limit of 6% in the near term on the back of inflationary pressures coming from above-inflation wage demands, a weak exchange rate and rising transport costs. As a result of recent movements in the rand exchange rate and international oil prices, a substantial under-recovery in fuel prices occurred in the first week of June, pointing to a possible hike in fuel prices in early July. The Reserve Bank’s forecast is for consumer price inflation to average 5,8% in 2013, slowing down to 5,2% in 2014.

Interest rates were kept unchanged in the first half of 2013, and are forecast to remain at current levels in the rest of the year before rising around mid-2014 to keep inflation under control. This interest rate projection is based on current trends in and prospects for the domestic economy and
inflation. Continued low interest rates will support the property market and benefit the affordability of housing and mortgage finance.

On the back of the latest trends in house price growth and various factors impacting the housing market, single-digit nominal year-on-year price growth is forecast for the full year. Real house price growth will continue to be driven by a combination of movements in nominal prices and consumer price inflation.

Last modified on Thursday, 13 March 2014 09:02

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