House prices fell a further 0.7 percent year-on-year in February, according to the latest oobarometer released by mortgage originators ooba on Monday.

According to the barometer, the average purchase price was at R827 553 in February 2009 compared with R833 461 in February 2008.

"Property prices continue to fall in the tough economic climate," said ooba chief executive Saul Geffen.

"We expect to see house prices decline further before they begin a recovery in early 2010.

"Already the 1.5 percent drop in interest rates has improved affordability and further interest rate cuts should speed up the property market recovery."

However, the month-on-month average purchase price has risen 6.2 percent from January to February.

"This, however, is not an indication of the recovery of the property market", said Geffen.

"We have seen a shift in weighting to more expensive properties which suggests that higher-income individuals are less sensitive to the economic woes and conservative bank lending practices."

Banks continue to restrict lending which has effects on both the average bank decline ratio as well as the ratio of applications declined by one lender, but approved by another.

The average bank decline ratio has jumped to 61.2 percent, which is severely constraining any property market recovery.

"This means on average across the banks 60 percent of all home loan applications where a willing buyer has tried to buy a home are being rejected outright," said ooba.

And the ratio of applications declined by one lender but approved by another has decreased to 20.3 percent of all applications compared with last year's figure of 38.6 percent.

"Banks have severely tightened lending since December and these policies if not relaxed soon are likely to have a further dampening effect on the property market," said Geffen.

"Banks are also demanding significantly higher deposits as a percentage of purchase price," he noted.

The year-on-year average deposit as percentage of purchase price is up by 46.9 percent.

On average, in February 2009, property buyers were required to put down a 24.1 percent deposit on the property they were purchasing compared with 16.4 percent recorded the year before.

"Estate agents are reporting a marked increase in activity since the beginning of the year. Buyers know the market is at, or near, a bottom and with the interest rates coming down demand, and therefore prices, will start to recover in the short term.

"The only wild card is the bank lending policies which could create a vicious cycle," concluded Geffen.

I-Net Bridge