House price growth at 7-yr low

By Staff Writer

From Fin24, January 10 2008

Nominal year-on-year (y/y) growth in house prices in the middle-segment of the market slowed to a level of 11.2% in December 2007 from 12.5% y/y in November according to the results from the latest Absa House Price Index released on Thursday.

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House prices were up by 14.5% in nominal terms in 2007 compared with 15.2% in 2006 and 22.6% in 2005.Real y/y price growth was only 3.8% in November - the lowest real growth since the 4.2% recorded in December 2002.

In the first eleven months of 2007, real growth in house prices averaged 7.5% y/y. The real growth rate is based on the headline consumer price index (CPI).

On a month-on-month basis, nominal house price growth slowed further to 0.3% in December from 0.4% in November. In real terms, house prices were unchanged in November from October.

"On the back of exchange rate and oil and food price movements in recent months, inflationary pressures in the economy have mounted further, causing the CPIX inflation rate to rise to a level of 7.9% in November last year," Absa said.

This was the highest CPIX inflation rate recorded since the 8.5% of April 2003.
"Inflation is expected to remain under upward pressure over the short term in view of an oil price of just below US$100/barrel and the rand exchange rate edging on R6.90 to the US dollar," Absa said.

These developments may lead to a further increase in fuel prices next month on the back of the current under-recovery in both petrol and diesel prices.

Against this background, CPIX inflation is forecast to peak at a level of well above 8% in the first quarter of 2008, which does not bode well for the interest rate outlook over the short term.

Absa said that growth in nominal house prices was forecast to taper off somewhat further in 2008 after the downward trend in price growth accelerated towards the end of 2007.

Nominal growth in house prices may drop to as low as 9% in 2008, largely driven by the tightening of monetary policy since mid-2006, the impact of the National Credit Act on the growth in credit extension to consumers, as well as an expected slower pace of economic expansion and lower growth in real household disposable income during the course of the year.

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