With economic conditions expected to improve in the second half of 2009 as a result of declining inflation and lower interest rates, Absa forecasts nominal house price growth to improve to levels of above 10 percent from 2010, with real price growth expected to turn positive again in 2010.

However, until then, conditions will be tough.

"Nominal house price growth is forecast to be significantly lower in 2008 and 2009 compared with recent years, with prices set to decline in real terms this year and next year," said Absa in its latest third quarter housing review.

The analysts see CPIX peaking later this year and then gradually declining to reach six percent by mid-2010. Lower economic growth is due in the period ahead on higher inflation and interest rates, however.

According to the research, the average nominal price of affordable housing increased by 12.1 percent year-on-year (y/y) to R283 200 in the second quarter of 2008 (14.5 percent y/y in the preceding quarter). Real price growth, however, came to only one percent y/y in the second quarter, down from 4.3 percent y/y in the first quarter.

Nominal price growth of 4.7 percent y/y was recorded in middle-segment housing in the second quarter of 2008 (8.2 percent y/y in the first quarter), which caused the price of a house in this market segment to average about R965 000 in the quarter.

In real terms, prices declined by 5.6 percent y/y in the second quarter (-1.5 percent y/y in the first quarter).

In the luxury segment of the market, house prices increased by a nominal 8.8 percent y/y to about R4.4-million in the second quarter of 2008 (eight percent y/y in the preceding quarter).

The average price of houses in this category dropped by a real two percent y/y in the second quarter, compared with a decline of 1.6 percent y/y recorded in the first quarter.

In the coastal areas, nominal house prices were up by an average of 4.2 percent y/y in the second quarter of 2008 (9.5 percent y/y in the first quarter).

"The coastal property market has slowed down significantly on the back of deteriorating economic conditions, as many properties in these areas have been bought for investment and speculative purposes in times when this market segment was growing strongly," concluded the Absa researchers.