The housing market may be starting to stabilise, FNB said on Tuesday as it released its latest House Price Index.

"The FNB House Price Index's year-on-year decline continued in August, but for the second successive month we saw a diminishing price deflation rate, with the index starting to show clearer signs that the market is starting to stabilise," said John Loos, property strategist at FNB.

On a year-on-year basis, the index declined by -7.4 percent in August, a significant improvement on the revised -8.5 percent deflation rate for July.

"On a month-on-month basis, although we haven't seasonally adjusted the series, the rate of increase has become too significant to merely write off as seasonal factors, with the August month-on-month rise amounting to 1.8 percent," Loos said.

The improving trend came some time after estate agents surveyed in FNB's Residential Property Barometer began reporting moderately strengthening demand levels back in the fourth quarter of 2008.

Loos said the reason for the index taking so long to get out of price deflation had been a significant oversupply of property on the market relative to demand, with many households having to sell properties due to financial stress.

He said the mild property market recovery had been overwhelmingly driven by interest rate cuts, with little help from an economy languishing in recession.

Loos said, while it was believed that the country's property market looked set to move back into price inflation early in 2010, the expectation was that 2010 would see single digit house price inflation and probably little if any 'real' house price inflation (house price inflation which outstrips consumer price inflation).

Many estate agents are constantly 'talking up' the property market and we've been hearing about the impending recovery from them almost from the start of the slump. This, however, is different and I certainly trust FNB's figures. Take note, however, what is said in the last paragraph. Even if property grows at 6.7 percent year-on-year (the latest inflation figure), there wouldn't be any 'real' growth (price growth ? inflation = real growth). ? Kabous le Roux (Personal Finance and Property Editor)