The month-on-month increase in house prices slumped last month to its lowest level in more than seven years, according to the latest Absa house price index released yesterday. Excluding the effect of inflation, house prices declined by 0.1 percent in June, although house prices remained static in real terms since March.
Absa said month-on-month house price growth slowed further from 0.7 percent in June to 0.5 percent last month, which was the slowest nominal growth recorded since the 0.4 percent in September 1999.

The slowdown in the rate of increase in house prices will be dented further if the Reserve Bank, as anticipated, increases interest rates by a further 0.5 percentage points next week. However, the impact of the National Credit Act on house price growth is still unclear. Jacques du Toit, a senior economist at Absa group economic research, said that the expected increase in interest rates this month had already been factored into its forecast house price growth of 13.5 percent to 14 percent for the full year.

In real terms, house prices increased by 7.5 percent in June, compared with a growth rate of 7.9 percent in May, while the real growth in house prices averaged 8.5 percent year on year in the first half of this year. Du Toit said the continuation last month in the downward trend in month-on-month house price growth caused the year-on-year growth measure to slow down.

A further moderation was expected in the remaining months of this year. Du Toit said the act could possibly influence house price growth rates, but questioned how this could be measured because it was not the only factor that is driving growth. However, Du Toit admitted that applying more stringent credit conditions because of the act could affect demand for houses, which would then filter through to house price growth rates.

Business Report, August 08, 2007

Increase in house prices at lowest level in seven years - 2007/09/13