House prices stay on rising trend, but...

House prices rose 3,1% on average in January, following a 2,3% rise in December, according to the latest statistics from First National Bank.

"But although this was the third consecutive month of year-on-year price inflation," says FNB Home Loans property strategist John Loos, "it does not change our expectation that price inflation won’t go further than single digits this year , with a household sector still under significant financial pressure, and the belief that interest rates are at or near to the bottom.

"The SARB Governor did hint at the possibility of interest rate reduction in the not too distant future, but given the 'downward stickiness' of consumer price inflation, even were further reduction to happen it would be unlikely to be substantial.

"The consumer price inflation rate actually rose from 5.8% year-on-year in November to 6.3% in December, and even though it is expected to return to the 3%-6% target range, both the SARB and ourselves expect it to hug the upper end of the target band, limiting the scope for further interest rate cutting."

Nevertheless, he says, the strengthening in the market is expected to continue until around mid-2010 at least, with the full impact of last year’s interest rate cuts still to feed through, and supported by a moderately strengthening economy.

It will, however, be a mild recovery where primary residential buying is the dominant focus. The FNB Residential Property Barometer for the 4th quarter, released last week, continued to show little sign of buy-to-let buying increasing in importance relative to the overall market, he notes.

Source:  Property Trader