House prices, in real terms, i.e. after adjustment for the effect of inflation, are set to deflate further in 2012, based on expected low nominal price growth and headline consumer price inflation to remain above the 6 percent level according to Absa Home Loans.
Nominal price growth in the middle segment of the housing market was expected to remain relatively low in 2012 after coming in at 2.2 percent in 2011.
Absa said that the continued subdued performance expected from property prices would be the result of developments and forecasts with regard to the macro economy and the household sector.
The affordability of housing, as represented by the ratios of house prices and mortgage repayments to household disposable income, improved only marginally in the third quarter of 2011 from the second quarter. This was the net result of trends in house price and income growth in the quarter, while interest rates remained unchanged during this period.
Many households' ability to take advantage of the improved housing affordability, however, continued to be hampered by a still relatively high debt-to-income ratio, a sizeable number of credit-active consumers having impaired credit records, the impact of the NCA, and banks' lending criteria.
After having expanded by an estimated real 3 percent in 2011, Absa Home Loans said that the South African economy was forecast to grow by 2,8 percent in 2012. The lower growth expected this year would largely be the result of a slower pace of expansion projected for the world economy, which would affect SA's export performance.
A weaker rand exchange rate in 2012 compared with last year would, however, support the country's export earnings. Trends in domestic inflation and interest rates would also impact the economy during the course of the year.