Analysts expect house price deflation this year

Analysts expect house price deflation this year

Low nominal house price growth and inflation would result in a real house price deflation of between 2 percent and 2.5 percent this year, according to the June Absa house price index.

Macroeconomic trends were weighing on the South African housing market, with year-on-year growth in the average nominal value of middle-segment homes slowing down further in June, Absa Home Loans property analyst, Jacques du Toit said recently.

Absa forecast a nominal price growth of between 4 percent and 4.5 percent this year. "On a month-on-month basis, nominal price growth has been on a declining trend over the past six months, coming to almost zero in June.

In real terms, after adjustment for the effect of consumer price inflation, some house price deflation was recorded on a year-on-year and month-on-month basis during the first five months of the year.

"Based on macroeconomic and household sector trends and prospects, nominal house price growth is forecast at between 4 percent and 4.5 percent for the full year, with some real price deflation of between 2 percent and 2.5 percent expected this year," Du Toit said.

Absa said factors affecting house prices were low economic, employment and income growth levels, high interest rates and low consumer confidence. These heightened inflationary pressures and consumer financial strain.

The economy contracted by a real 1.2 percent quarter on quarter and 0.2 percent year on year, measured by production, in the first quarter of the year and a full-year contraction in real gross domestic product of 0.2 percent is projected.

Rising consumer price inflation and higher interest rates were forecast for the second half of the year, "which will continue to erase consumers? purchasing power and lead to increased levels of financial strain.

"Against this background, consumer confidence remained around its lowest level in many years in the second quarter of the year, with little prospect of improvement in the near future," Absa said.

The FNB Property Barometer last week said the economy was responsible for a mild acceleration in average house price growth this year.

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Article originally from iolproperty