In real terms, the average price of large houses was down by 4.2 percent year-on-year in August, compared with a decline of 5.3 percent year-on-year recorded in July.

Du Toit said the residential property market was still experiencing tough times on the back of an economy that was in recession, "which adversely impacts the household sector over a wide front".

There were, however, indications that the worst might be over for the local economy and that a recovery was to commence towards the end of the year, Du Toit said.

"House price trends appear to have turned the corner and with mortgage interest rates down by 500 basis points compared with late last year, as well as the recently selective relaxation of mortgage lending criteria by banks, property market conditions in general are expected to improve, but the process of recovery will most probably be slow and gradual," he said.

In view of nominal year-on-year house price deflation slowing down over the past few months, prices might start rising on an annual basis again in the near future if current trends were to continue.

Based on these trends as well as nominal price deflation of 2.1 percent on average in the first nine months of 2009 compared with the same period in 2008, prices may record a decline of less than two percent for the full year, Du Toit said.

In real terms, house prices were forecast to decline by around nine percent this year.

In 2010, nominal price growth of between two percent and three percent was expected, with prices forecast to decline somewhat further in real terms next year based on projections for nominal house price growth and headline consumer price inflation, Absa said.