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House price growth slowing down in 2015

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House price growth slowing down in 2015

13 Jul 2015

 

Nominal house price growth is forecast to average around 6% in 2015, and may slow down even further in 2016 on the back of trends and the outlook for the economy and household sector, which will be reflected in the property market.

Du Toit says with the headline consumer price inflation rate forecast to rise to above the upper limit of the inflation target range of 3% to 6% towards the end of the year and for most of 2016, there is a significant probability of house prices deflating in real terms up to late next year.

This is according to Jacques du Toit, Property Analyst for Absa Home Loans, who says with the headline consumer price inflation rate forecast to rise to above the upper limit of the inflation target range of 3% to 6% towards the end of the year and for most of 2016, there is a significant probability of house prices deflating in real terms up to late next year.

According to the Absa house price indices, the first half of 2015 saw year-on-year growth in the average nominal value of homes in the various categories of middle-segment housing in theSouth African residential property market remaining subdued.

Du Toit says after adjustment for the effect of inflation, some real house price deflation was evident in some categories of housing in May, compared with the same month a year ago.

Nominal month-on-month growth in house prices remained relatively low in the second quarter of 2015, averaging 0.5%, while declining in real terms in the three-month period of March to May this year.

House prices were in May still down by an average of 10.5% in real terms when compared with the peak in August 2007, he says.

In June 2015, the average nominal value of homes in each of the middle-segment categories was R830 000 for small homes (80sqm to 140sqm), R1.224 million for medium-sized homes (141sqm to 220sqm) and R1.892 million for large homes (221sqm to 400sqm).

This is 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.

Du Toit says the gradual slowdown in year-on-year house price growth, which commenced in October last year, and is largely driven by economic trends and developments regarding household finances, is showing early signs of temporarily levelling out as a result of base effects.

“However, trends in and prospects for the economy and the consumer sector do not bode well for the property market and house price growth in the second half of the year,” he says.

Author: Jacques du Toit, Property Analyst for Absa Home Loans,

Submitted 14 Jul 15 / Views 1997