By Siphamandla Mkhwanazi
The FNB House Price Index (HPI) slowed further in July, with annual house price growth easing to 5.1% year-on-year (y/y) from 5.5% y/y in June (Figure 1). While house price inflation remains modestly ahead of headline consumer inflation, which measured 4.3% y/y in July, the gap has narrowed significantly compared to earlier in the year. The latest data suggests that house price growth continues to normalise as demand softens from earlier highs. However, emerging signs of stabilisation in market strength indicators suggest that the worst of the recent correction may be behind us (Figure 2). Overall, the slowdown in residential property price growth suggests that some of the tailwinds that previously supported household balance sheets and spending power, particularly among higher-income consumers, are fading.
Market conditions stabilising despite weaker demand
Our Market Strength Indices, derived from a database of property valuers, indicate that market conditions may be stabilising. Demand strength turned marginally positive during the month, while supply conditions were broadly unchanged (Figure 3). If sustained, this would suggest that the demand correction triggered by heightened global uncertainty, rising living and borrowing costs, and weaker confidence following the Middle East conflict is nearing its end, albeit from a level well below the February 2026 peak.
Importantly, however, supply-side constraints continue to provide meaningful support to house prices. New residential development activity remains subdued, while the stock of existing homes available for sale has declined. This limited availability of housing stock is helping to offset weaker demand conditions and is preventing a more pronounced slowdown in prices. As a result, the adjustment is likely to occur primarily through weaker transaction volumes and longer selling periods in certain market segments, rather than materially lower house prices.
Outlook
We expect house price growth to slow further towards 4% by year end, bringing residential property inflation closer to broader consumer inflation trends. While demand-side conditions are likely to remain weak, at least until the interest rate cutting cycle resumes, supply constraints should limit downside risks to house prices and help preserve modest positive real price growth in the near term.
Rental market conditions are also expected to remain relatively firm. Affordability pressures and tighter lending conditions should continue to support demand for rental accommodation, while a constrained development pipeline limits growth in rental stock. Vacancy rates, however, remain slightly above pre-pandemic levels, indicating that excess capacity has not yet been fully absorbed, particularly in key Gauteng nodes. While landlords have regained some pricing power, there appears to be a natural ceiling to rental growth before affordability pressures curb demand. Consequently, rental inflation is likely close to its cyclical peak and should increasingly converge towards broader consumer inflation trends over the medium term.
