Johannesburg — HOUSE prices are forecast to decline 3,5% in nominal terms this year, the second successive year of declining prices as the recession bites.

Absa senior property analyst Jacques du Toit said yesterday the recession, the level of household income and debt, and the medium- term outlook were such that a clear and quick improvement in the housing market was unlikely.

Du Toit said nominal house price deflation was set to continue for the rest of this year, starting to slow down towards the end of the year. In real terms, prices were set to drop more than 12% , taking into account projections for consumer price inflation.

"This will be the second consecutive year of lower real prices. 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 next year," he said.

But for now the picture looks bleak, with the Absa house price index yesterday showing that house prices fell the most in 23 years last month, dropping 4,4% compared with last year with the average nominal price of middle-segment housing dropping to R924600 last month from 4% in May.

The index showed that in real terms, prices were down 11,1% annually in May from 10,9% in April.