South African nominal year-on-year (y/y) house price growth in the middle segment of the market in September dropped to its lowest level in more than 15 years. Nominal price growth was lower in all three categories of housing (small, medium-sized and large houses), according to the latest Absa House Price Indices released on Wednesday.

The average nominal price of middle-segment housing was up by 1.5 percent year-on- year (y/y) in September 2008, down from a revised growth rate of 2.1 percent in August.

The September growth rate was the lowest since February 1993 and brought the average nominal price of a house in this segment of the market to about R966 600.

With nominal year-on-year house price growth edging lower in September, the risk of it moving into negative territory has increased further, Absa said.

Eighth consecutive month of decline

In real terms, middle-segment house prices declined for the eighth consecutive month in August this year, by 10.2 percent y/y (-9.3 percent y/y in July) based on headline consumer price inflation.

This was the biggest real price drop since October 1992, when it was –10.5 percent y/y, the bank said.

Nominal price growth with regard to small houses (80m² to 140m²) came in at 3.3 percent y/y in September 2008 (4.1 percent y/y in August).

This brought the average nominal price of small houses to about R685 400 in September.

In real terms the average price of small houses dropped by 8.4 percent y/y in August 2008 (-7.5 percent y/y in July).

The average nominal price of medium-sized houses (141m² to 220m²) increased by 1.7 percent y/y in September 2008 (2.3 percent y/y in August), which brought the average price of housing in this segment of the market to around R952 100.

In real terms the average price of medium-sized housing was down 10 percent y/y in August (-9.1 percent y/y in July), Absa said.

With regard to large houses (221m² to 400m²), nominal price growth of just 0.9 percent y/y was recorded in September this year, down from two percent y/y in August. This brought the average price of housing in this category to a level of about R1.377-million in September. Taking account of the effect of inflation, the average price of large houses was down by 10.3 percent y/y in August (-8.9 percent y/y in July).

A growth rate of just below four percent expected for the full year

Looking ahead, nominal price growth across all three categories of housing in the middle segment of the market is forecast to slow down further towards the end of 2008, with a growth rate of just below four percent expected for the full year.

This will be the lowest nominal growth rate recorded in house prices since 1999 when it was 4.9 percent. In real terms house prices are set to drop by about seven percent this year — the first annual real decline in house prices since 1999. Based on nominal house price growth of about three percent and consumer price inflation of 7.4 percent expected in 2009, house prices are set for a further decline in real terms next year, said Absa.

Projections of declining inflation and lower interest rates in 2009 are expected to lead to a bottoming in the housing market during next year with a gradual recovery in the residential market set to take off in the second half of the year, the bank said.

Nominal house price growth of above 10 percent is only expected in 2010 with real price growth projected to turn positive in the same year after two consecutive years of real price declines, concluded the bank.

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