Property prices drop in real terms

7 Nov 2011

"After a brief uptick in year-on-year house price growth as mid-2011 approached, it would appear that a low peak has been reached and the decline in growth has resumed," the bank said in its October house price index.

After a revised year-on-year growth rate of 5.1 percent in September the FNB House Price Index for October saw its growth declining to 4.5 percent.

"The small acceleration in house price inflation earlier this year was believed to be the result of slightly improved affordability of credit after two late 2010 interest rate cuts," FNB said.

"The more recent resumption of slowing growth is the result of no further interest rate cutting in 2011, along with slowing economic growth in the second quarter starting to put downward pressure on real disposable income growth."

The bank said the slowing nominal house price growth suggested that the longer-term downward correction in house prices in real terms, when adjusted for consumer price inflation, was continuing.

The October results implied that since the beginning of the big market "correction" - which FNB believed began after a real house price boom time peak in February 2008 - house prices in real terms had declined cumulatively by 15.7 percent.

"In nominal terms, as one would expect in a country with significant consumer and wage inflation, nominal house prices have risen cumulatively by 6.2 percent since February 2008.

"However, since July 2000 when the index started, prices are still up 64.3 percent in real terms and 211.1 percent in nominal terms."

The average price of homes transacted in October, according to the FNB House Price series, was R814,011.