House prices in South Africa may be overvalued by as much 25 percent despite the economy being three years into “the great recession”, while it could take "many years" for prices to fall in line with actual values, property economist Erwin Rode said yesterday.

In the latest issue of the Rode Report on the South African property market, Erwin Rode, CEO of Rode & Associates, said real house prices — excluding inflation — were still 25 percent higher than suggested by their trend line of the past 44 years.

Rode said research using Absa ’s house price index — which accounts for a third of mortgage bond finance — and the Bureau for Economic Research’s building cost index showed that house prices were inflated.

"Considering that asset prices are mean-reverting, the implication is that a resumption in the down trend in real house prices is inevitable — it is only a question of time and speed," he said.

“Prices are so high in real terms that you must expect the bubble to burst some time,” Rode added. “It will take many years for the market to get back to more realistic price levels – five years or maybe more depending on the speed of the price decline in real terms.”

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