The South African Absa bank reports a nominal house price growth of 13,7% year-on-year for March compared with a revised growth rate of 14,6% in February in its House Price Index for March. 

This was the lowest year-on-year growth since February 2002 and brought the average price of a house in the middle segment of the market to about R765 400 in March this year.

The average nominal year-on-year growth in house prices in the first quarter of 2006 was 14,5%.

In real terms, year-on-year growth of 10,3% was recorded in February compared with a revised growth rate of 10,9% in January, based on the headline consumer price index. On a month-on-month basis, nominal growth in house prices was down to 0,6% in March compared with a revised growth rate of 0,9% in February. Real month-on-month growth of 0,8% was recorded in February this year.

Based on the current mortgage interest rate of 10,5% and the average price of a house in March this year, the monthly mortgage repayment and the gross monthly income required in order to afford a 100% mortgage, were 10% higher in the past month compared with March 2005 when the rise was 23,6%.

Although housing is, in general, still less affordable than a year ago according to this analysis, the rate of deterioration has decelerated significantly during the course of the past twelve months.

The international price of oil is higher at above $60/barrel since mid-March, while the rand strengthened significantly against the major international currencies during the past
week. CPIX inflation increased since late last year from a level of 3,7% in November to 4,5% in February. However, it is believed that CPIX will remain well within the inflation target range of 3%-6% in 2006.

As a result of these developments, the Reserve Bank is expected to leave interest rates unchanged at its next MPC meeting later in April. In view of the favourable outlook for CPIX inflation in 2006, interest rates are forecast to remain at current levels for the rest of the year.

The slight deceleration in the declining trend of house price growth in recent months Absa says is probably related to base effects caused by slower growth in house prices since late 2004.

In view of this development, as well as taking into account an important factor such as the significant cut in transfer duty on property, announced in the Budget in February, average nominal house price growth of 12% is projected for 2006. In 2005, nominal house price growth of 22,1% (18,1% in real terms) was recorded.
 
Source: ABSA Bank, April 6 2006

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