12 Jan.
2011 saw low nominal house price growth, with prices
deflating in real terms.
Relatively low nominal year-on-year house price growth was recorded in 2011, while in real terms, prices dropped last year compared with 2010. On a monthly basis price growth slowed down or was in negative territory towards the end of the year. These trends are based on the Absa house price indices for small, medium-sized and large homes in the middle-segment of the South African housing market for which the bank received and approved applications for mortgage finance (see explanatory notes).
Last year saw nominal growth in middle-segment home values of 2,2%, down from 7,3% in 2010. Interest rate cuts to the amount of 450 basis points in 2009 provided stimulus to the housing market, contributing to prices rising by more than 7% in 2010. However, interest rates were cut by only another 150 basis points in 2010, and remained unchanged in 2011. This, together with rising inflation, relatively high levels of debt, damaged credit records and tight labour market conditions, weighed on consumers and confidence levels during last year, impacting the demand for housing and mortgage finance, as well as house price growth.
Understanding South African Financial Markets
By Cecilia van Zyl; Ziets Botha; Peter Skerritt; Ingrid Goodspeed, 3rd edition, 2009
The South African financial markets comprise a range of activities, participants and instruments. Conceptually, they are concerned with two principal sets of activities: the transfer and trading of money or other financial claims, and the transfer and trading of risk. Understanding South African financial markets provides a framework for classifying and analysing these markets within the context of a modern capitalist system. This title gives an overview of the operation of various institutions in the South African financial system, as well as of the different financial markets in the South African economy and the instruments traded in those markets. Topics covered include the role of the South African Reserve Bank, technical features associated with the money market, and corporate governance and risk management. Each chapter opens with study objectives and jargon is explained in lay terms. Relevant international and local market practices and norms are applied.
Driven by increasing food prices, transport costs and property running costs, headline consumer price inflation was on an upward trend throughout 2011, rising to above 6% yearon- year (y/y) late last year. This caused house prices to deflate by a real 2,7% in 2011. The average real price of middle-segment houses, calculated at constant 2008 prices, was in November almost 14% below its peak of August 2007, which was the result of average nominal house price growth being below the average headline consumer price inflation rate over the past 4½ years.
Average nominal house prices in the various segments were as follows in December 2011, with nominal and real price changes presented in the table on the next page:
- Small homes (80m²-141m²): R694 400
- Medium-sized homes (141m²-220m²): R985 400
- Large homes (221m²-400m²): R1 548 200
…
Read more at Absa Property Research
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