The South African economy contracted at a real annualised rate of 1,8% in the fourth quarter of 2008, while data on various short-term economic indicators released in the first few months of 2009 indicate that the economy is most probably in a recession. Real GDP growth for 2009 is forecast at -0,5%.
- The household sector, plagued by lower levels of employment and declining real disposable income, is expected to continue experiencing a fair amount of financial strain this year, despite declining interest rates.
- In the first quarter of 2009 nominal house prices declined on a year-on-year basis for the first time since late 1986, while in real terms, prices dropped over a wide front as a result of inflation trends and declining nominal prices.
- The average nominal price of affordable housing increased by 4,5% year-on-year (y/y) in the first quarter of 2009, compared with price growth of 5,9% in the fourth quarter of 2008. In real terms prices declined by 3,6% y/y in the first quarter.
- Middle-segment house prices dropped by a nominal 0,3% y/y in the first quarter of the year after increasing marginally by 0,2% y/y in the fourth quarter of last year. In real terms prices dropped by 8,0% y/y in the first quarter, from a decline of 9,2% y/y recorded in the preceding quarter.
- In the luxury segment of the market, house prices increased by a nominal 4,5% y/y in the first quarter of 2009 (7,6% y/y in the final quarter of 2008). The average price of houses in this category dropped by 3,6% y/y in real terms, compared with a real decline of 2,6% y/y in the fourth quarter of last year.
- House price growth in various provinces, metropolitan areas and coastal regions was negative in both nominal and real terms on a quarterly and annual basis in the first quarter of 2009.
- The affordability of housing has improved further towards the end of last year, based on the ratio of house prices as well as mortgage repayments to household disposable income. However, in view of current economic conditions, few households are in the position to take advantage of these developments with regard to the affordability of housing.
- Banks’ lending rates to the public, i.e. prime and mortgage interest rates, may be cut further in the near term on the back of expected lower inflation and a poorly performing economy. Levels of employment are declining, having an adverse impact on household income and expenditure.
- In view of a contracting economy and many households still experiencing some financial strain, the residential property market is expected to remain depressed until late this year. House prices are forecast to decline by a nominal 3%-4% in 2009, while further real price declines can be expected this year.
Download the full ABSA Housing Review (2nd Qtr 2009) here (232kb)