Nominal house price growth is forecast to continue into next year, with the affordability of housing, especially for first-time and low-income to middle-income buyers, remaining important.

This is according to the residential property perspective for the fourth quarter of this year, released by Absa Bank on Wednesday.

Looking back to the period 2000 to 2004, Absa said that in view of rapidly rising house prices in general during this period, the affordability of housing has become an important issue.

"The ratio of house prices to household income in South Africa was at a level of 4.5 (times the average household income) in 2000. It increased to 7.2 (times) in 2004 and rose to significantly higher levels in certain provinces such as the Eastern Cape (10.6) and Limpopo (8.3).

"Housing in these provinces has become much less affordable than in provinces such as Gauteng and the Western Cape, which have a relatively high level of house prices, together with a high level of household income," the report read.

Turning to the forecast for next year, Absa said that in view of expected higher interest rates in 2006, the current slowing trend in nominal house price growth was forecast to continue.

"Single-digit house price growth of between five percent and ten percent is projected for 2006."

The report went on to read that house price growth of 19.6 percent year-on-year was recorded in the third quarter of this year.

"This was the first time since early 2003 that nominal year-on-year house price growth dropped below 20 percent.

"In real terms, house prices increased by 15.3 percent in the past quarter. During the first three quarters of 2005, nominal house price growth came to 24.3 percent year-on-year, whereas real growth of 20.4 percent was recorded during this period.

"The declining trend in both nominal and real house price growth can mainly be ascribed to the fact that housing is still less affordable than a year ago, taking into account house price, interest rate and income trends."

Absa further reported large differences in the affordability and potential market size of housing in different regions of the country.

"Diversities in... growth in house prices and the level of and growth in household income create a different impression of the state of the property market in the various regions".

Sapa

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