The latest Absa House Price Index, released on Monday, affirms that house prices continued to fall in March.

According to the data, the average nominal price of a middle-segment house dropped by 0.4 percent year-on-year in March 2009.

This followed a fall of 0.2 percent year-on-year in February.

In both nominal and real terms house prices declined the most in the large segment on a year-on-year basis and the least in the small segment in recent months.

"This is an indication of the upper end of the market being under much pressure with more buyers opting for smaller and more affordable housing," Absa said.

The bank said that after contracting at a rate of 1.8 percent in the fourth quarter of 2008, the economy was forecast to contract further on a quarter-on-quarter basis in the first and second quarters of 2009.

It would bottom out and recover gradually in the second half of the year.

Real GDP growth for 2009 was projected at minus 0.5 percent, negatively impacting employment and household income.

According to Absa, the SA Reserve Bank's monetary policy committee was expected to cut the repo rate (the key monetary policy rate) by a further 250 basis points to a level of seven percent up to June this year.

This would prompt commercial banks to lower their prime and mortgage interest rates to 10.5 percent.

"Interest rates have already been cut by a cumulative 250 basis points since December last year.

"Despite the expectation of further interest rate cuts the household sector may continue to experience some financial strain this year, especially in view of an expected poorly performing economy," Absa said.

This was forecast to cause further job losses which would adversely affect household income and consequently consumer sentiment, confidence and spending.

As a result, the housing market was expected to remain under pressure for much of 2009 with house prices forecast to drop by a nominal three to four percent and a real 8.5 percent to 9.5 percent this year, Absa said.

Sapa