South African National Property Services

Pace of house price growth slowed further in July

Based on the latest Absa House Price Index, house price growth in the middle segment of the market (see explanatory notes) was a nominal 14,5% year-onyear in July 2007 (15% in June), which caused the average price of a house to increase to about R932 100. Average nominal house price growth of 15,4% was
recorded between January and July compared with the same period last year. Real year-on-year growth in house prices of 7,5% was registered in June compared with a growth rate of 7,9% in May, based on the headline consumer price index. In the first six months of 2007, real growth in house prices averaged 8,5%
year-on-year.

On a month-on-month basis, nominal house price growth slowed further to 0,5% in July (0,7% in June), wich was the slowest nominal month-on-month growth recorded since September 1999 when it was 0,4%. In real terms, house prices declined by 0,1% month-on-month in June. Since March this year, house prices
remained static in real terms. The Reserve Bank’s Monetary Policy Committee (MPC) will meet on 15 and 16 August to decide on the way forward for domestic interest rates. CPIX inflation has been above the 6% upper limit of the inflation target range for three consecutive months since May this year. Inflation expectations are forecast to remain under upward pressure over the short term, taking into account wage settlement rates of well above inflation and recent trends in oil prices, the rand exchange rate and food prices. In view of these developments, interest rates are expected to be hiked by another 50 basis points next week, which will see banks’ prime and mortgage rates rising to a level of 13,5%. The downward trend in nominal month-on-month house price growth continued in July, reaching its lowest level in more than 7½ years. This caused the year-onyear growth measure to also slow down, with a further moderation expected in the remaining months of the year. This will mainly be the result of higher interest rates, while it still has to be seen to what extent the National Credit Act will influence price growth, if at all.

Authored by Jacques du Toit