Trouble for house prices in South Africa – but the turn is coming

The latest FNB House Price Index (HPI) shows that the mood in South Africa’s residential property market is still subdued, even though conditions are improving.

This means that the recent interest cuts and easing financial pressure on households are not yet reflected in the HPI and may still take some time to filter through.

Further, this means that house prices are likely to average lower in 2024 and only start picking up in 2025 and 2026.

The HPI averaged 0.8% in November, slightly lower than 0.9% in October (revised from 0.3% y/y), and lower than 1.0% in November 2023.

FNB said that house price growth should average around 0.8% in 2024 before climbing towards 1.7% in 2025 and more towards the 3% mark in 2026.

In real terms—adjusted for inflation—this keeps the HPI solidly in negative territory.

Of note is that previous data has been revised upwards. These revisions are mostly ascribed to updates to deeds data, especially in the Gauteng regions, which FNB uses to match its internal valuations data.

The revised data now suggests that house prices troughed around June—earlier than previously thought—which FNB said aligns with its initial expectations.

“This earlier trough aligns with improving sentiment and the initial signs of market recovery,” it said.

“The recent uptrend depicted by the revised data is consistent with other market indicators, such as the FNB 3Q24 Estate Agents Survey, which indicated a surge in activity, particularly in key regions such as Gauteng and the Western Cape, coupled with a reduction in the time it takes to sell a property.”

Positives in the property sector include improved sentiment and expectations of further rate cuts in the country. Lower borrowing costs are expected to stimulate demand in lower-priced segments, where affordability remains a constraint.

Despite this, FNB noted that a historical comparison of real house prices to its market strength indices suggests that current real house prices should be higher.

“This divergence may indicate that while buyer interest has increased, market forces have not been sufficient to generate significant upward momentum in property values,” it said.

“As we emerge from the cost-of-living crisis, current trends suggest that buyers remain cautious, prioritising affordability.”

This was evident in mortgage extensions remain subdued, averaging 2.8% year-to-date, down from 5.7% in 2023, the bank said.

“Nevertheless, we maintain a cautiously optimistic outlook, supported by easing inflation, declining borrowing costs, improving real incomes, and strengthening consumer sentiment.”

Read: New reality for homebuyers and sellers in South Africa