South Africa house prices on the slide

South African house prices fell the most in 23 years last month, dropping 4.4 per cent from the year-earlier period, says Absa Group, the country's biggest mortgage lender.

The average nominal house price dropped to R924,600 ($182,441) as prices fell 0.5 per cent in the month. South Africa is in its first recession in 17 years, pushing up unemployment, slowing consumer spending and depressing house prices.

The Reserve Bank has cut its benchmark interest rate five times since December, dropping it to 7.5 per cent.

"Nominal house price deflation is set to continue for the rest of 2009, starting to slow down towards the end of the year," Absa said yesterday.

"The lagged effect of lower interest rates and a gradual recovery in the economy from the second half of the year are factors which will contribute to an expected improvement in residential property market conditions from early 2010."

House prices would probably decline about 3.5 per cent this year, and by more than 12 per cent after taking inflation into account, Absa said.

Absa's house-price index is based on the average cost of a home from the mortgage applications it receives. Standard Bank Group, which uses the median price in its survey, said house prices fell 4.9 per cent in June compared with a year earlier.

- BLOOMBERG