Johannesburg — THE downward trend in residential property price growth is continuing unabated with the rising interest rate environment expected to bring more pressure to bear on the housing market, according to the latest Absa house price index.

Absa bank senior economist Jacques du Toit said yesterday that nominal house price growth of 12,7% year on year was recorded last month, compared with a revised growth rate of 13,5% in September.

Du Toit said the average price of a house in the middle segment of the market was R830700 last month, from R824700 in September.

The bank said the average nominal year-on-year growth in house prices came to 14,7% in the first 10 months of this year.

Du Toit said the declining trend was on the back of house prices becoming relatively more expensive and less affordable. Higher interest rates were also expected to start affecting the residential market.

Du Toit said the issue of affordability and rising interest rates would be the two factors playing a major role in the property market over the next 12 months.

"Against that background, we can expect house price growth to move much lower, well into 2007. We forecast single-digit growth of about 6% for next year," he said.

Du Toit said Absa bank was expecting a 50-basis-point interest rate increase next month and two further hikes of 50 basis points each in February and April.

He said house prices were forecast to increase about 14% in nominal terms this year.

Michael Levin, senior investment manager at Cannon Asset Managers, said he agreed with Du Toit's "overall thinking" about interest rates increasing.

"We are expecting interest rates to increase by at least another 50 basis points by the end of the year," said Levin.

He said he expected single-digit growth in house prices at the top end of the market over the next year.

But Levin said he was expecting double-digit house price growth in the segment priced below R500000 because of demand.

"There are (also) increases in disposable income and people are in a better position to afford those houses," he said.