In September 2008 nominal year-on-year house price growth in the middle segment
of the market dropped to its lowest level in more than 15 years. Nominal price
growth was lower in all three categories of housing (small, medium-sized and large
houses). In real terms (i.e. after adjustment for inflation) house prices were in
September at levels last seen in January 2006. Factors such as surging inflation,
higher interest rates and slowing real household disposable income growth and the
impact of the National Credit Act are weighing on household finances and have
caused the residential property market to slow down sharply in recent times.
The average nominal price of middle-segment housing (see explanatory notes)
was up by 1,5% year-on-year (y/y) in September 2008, down from a revised growth
rate of 2,1% in August. The September growth rate was the lowest since February
1993, and brought the average nominal price of a house in this segment of the
market to about R966 600. With nominal year-on-year house price growth edging
lower in September, the risk of it moving into negative territory has increased
further.
In real terms, middle-segment house prices declined for the eighth consecutive
month in August this year, by 10,2% y/y (-9,3% y/y in July), based on headline
consumer price inflation. This was the biggest real price drop since October 1992,
when it was -10,5% y/y.
With regard to small houses (80m²-140m²), nominal house price growth was 3,3%
y/y in September 2008 (4,1% y/y in August). This brought the average nominal price
of small houses to about R685 400 in September. In real terms the average price of
small houses dropped by 8,4% y/y in August 2008 (-7,5% y/y in July).


The average nominal price of medium-sized houses (141m²-220m²) increased by 1,7% y/y in September 2008
(2,3% y/y in August), which brought the average price of housing in this segment of the market to around R952 100.
In real terms, the average price of medium-sized housing was down 10,0% y/y in August (-9,1% y/y in July).
With regard to large houses (221m²-400m²), nominal price growth of just 0,9% y/y was recorded in September this
year, down from 2,0% y/y in August. This brought the average price of housing in this category to a level of about
R1 377 900 in September. Taking account of the effect of inflation, the average price of large houses was down by
10,3% y/y lower in August (-8,9% y/y in July).
The latest trends in house price are a result of developments on the macroeconomic front over the past two years
and the impact of these factors on the household sector. Nominal price growth across all three categories of housing
in the middle segment of the market is forecast to slow down further towards the end of 2008, with a growth rate of
just below 4,0% expected for the full year. This will be the lowest nominal growth rate recorded in house prices since
1999 when it was 4,9%. In real terms house prices are set to drop by about 7% this year, which will be the first
annual real decline in house prices since 1999. Based on nominal house price growth of about 3% and consumer
price inflation of 7,4% expected in 2009, house prices are set for a further decline in real terms next year.
Projections of declining inflation and lower interest rates in 2009 are expected to lead to a bottoming in the housing
market during next year, with a gradual recovery in the residential market set to take off in the second half of the
year. Nominal house price growth of above 10% is only expected in 2010, with real price growth projected to turn
positive in the same year after two consecutive years of real price declines.

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