Economic growth is picking up and interest rates are at historic lows, but house prices will continue to decline in real terms, Absa said in a quarterly update on Thursday.
The economy is forecast to grow by a real 3.9 percent in 2011, supported by steady global growth and a further improvement in domestic demand, said Jacques du Toit, Absa's senior property analyst.
But house prices are likely to grow only between one and two percent this year in nominal terms, rising to four percent in 2012.
This is lower than inflation, which is predicted to average five percent in 2011 and six percent next year.
In real terms - taking the effect of inflation into account - this means house prices are declining, he said.
Between January and March, the economy grew at a seasonally adjusted and annualised rate of 4,8 percent. This was the seventh consecutive quarter of economic growth since the third quarter of 2009, when the economy began to recover.
This is the latest quarter for which economic information is available.
Despite the good news, nominal house price growth remained low or even negative in some market segments for the second quarter of 2011.
Real rates strip out the effect of inflation on prices, while nominal rates include inflation.
Households have been able to improve their financial position so far this year. Disposable income and consumption have grown in real terms, and the ratio of debt to household income dropped to below 77 percent in the first quarter.
Interest rates have remained stable for the first half of 2011, with prime and variable mortgage interest rates held at a level of nine percent since November last year, Du Toit said.
This is the lowest lending rate since 1974.
In effect, this means that monthly mortgage bond repayments are 33 percent lower than in December 2008, when the mortgage rate was 15,5 percent.
Housing has become more affordable, helped by low house price growth, slightly lower interest rates, and rising household income. But households are still hampered by relatively high levels of debt, impaired credit records, and stricter lending criteria, leading to low growth in mortgage finance for individuals, he said.
Absa forecasts a real economic growth rate of four percent for 2011 and 2012, supported by predictions of world economic growth of 4,3 percent for this year and 4,5 percent for next year. Domestic demand is expected to grow as household finances improve.
Rising transport costs, food prices, and housing operating costs mean that headline consumer price inflation is likely to average five percent this year and six percent next year.
Interest rates are expected to remain unchanged for the rest of the year. However, they are expected to rise by a total of 200
basis points during the first seven months of next year, but remain stable thereafter.
This would bring prime and variable mortgage rates to 11 percent by the end of 2012, affecting consumers' debt repayments, and the cost and affordability of debt and credit.
Growth in mortgage finance for the household sector is expected to remain in single digits into 2012. - Sapa