Monthly nominal price growth came to a virtual standstill in August, after being on a declining trend during the course of the year. In real terms, i.e. after adjustment for the effect of consumer price inflation, house prices contracted unabatedly on a year-on-year and month-on-month basis in the first seven months of the year.

Nominal price growth of 3,8% year-on-year (y/y) was recorded in middle-segment housing in August this year, with real price deflation of 1,7% y/y registered in July.  The average nominal value of homes in each of the middle-segment categories was as follows in August 2016:

• Small homes (80m²-140m²): R939 000

• Medium-sized homes (141m²-220 m²): R1 312 000

• Large homes (221m²-400m²): R1 973 000  

The abovementioned trends in home values are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes (see explanatory notes). The South African economy recorded real growth of 3,3% at a seasonally adjusted annualised rate in the second quarter of the year, after a contraction of 1,2% in the first quarter.

Second-quarter growth was mainly driven by the mining sector (11,8% growth), the manufacturing sector (8,1% growth), the transport, storage and communication sector (2,9% growth) and the finance, real estate and business services sector (2,9% growth). The economy is, however, forecast to show very little, if any, growth for the full year.

Headline consumer price inflation averaged 6,3% y/y in the first seven months of the year and is forecast to remain above the 6% level up to year-end. Interest rates have been hiked earlier this year and further rate hikes cannot be ruled out. Consumers’ financial vulnerability and credit health deteriorated further in the second quarter of the year, with consumer confidence, already at a low level, that may continue to decline.

Against the background of the abovementioned trends and prospects, nominal house price growth is forecast to remain under downward pressure in the rest of the year and into 2017, with prices expected to drop further in real terms over the next twelve months.