By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Another cut at the January MPC meeting?
The South African housing market is entering 2026 at a critical cyclical turning point. After a prolonged adjustment phase following the post-pandemic tightening cycle, market conditions are shifting from a period characterised by supply-led price resilience toward a phase of gradually improving and increasingly broad-based demand.
This transition follows what was effectively a consolidation year in 2025, during which household balance sheets stabilised, inflation declined sharply, and monetary policy began to ease more meaningfully. Importantly, the emerging recovery reflects strengthening fundamentals rather than speculative excess. Affordability conditions are improving, real incomes are recovering, and new credit growth is increasingly concentrated among higher-quality borrowers. Collectively, these developments suggest that the housing market is moving into a more sustainable expansion phase, with activity expected to lead price growth through 2026.
Macroeconomic backdrop: A More supportive environment
The macroeconomic environment has become decisively more supportive of housing market conditions. Headline inflation averaged 3.2% in 2025, the lowest level in over two decades, and is expected to remain anchored close to the South African Reserve Bank's (SARB) 3% inflation target through 2026, averaging around 3.1%. This disinflation has created space for the SARB to continue loosening the grip of monetary policy on activity.
We expect a cumulative 50-basis point (bps) reduction in interest rates during 2026, with the risk of more easing, should inflation dynamics prove more favourable than anticipated. Lower policy rates would materially ease monthly debt-servicing costs, improve affordability, and increase housing demand. Crucially, these gains follow a period of household balance-sheet repair. Credit data from late 2025 points to strong new lending activity alongside subdued growth in net household debt, indicating that the housing market is increasingly underpinned by less-leveraged, higher-quality borrowers.
This shift in the composition of credit growth suggests that the next phase of the housing cycle is likely to be more resilient to shocks, with demand supported primarily by income growth and improved affordability rather than by leverage expansion. From a housing market perspective, the significance of this macro shift lies less in stimulating speculative demand and more in restoring confidence. While improved affordability encourages households that postponed purchasing decisions during the hiking cycle, particularly first-time buyers and upgrading households, to re-enter the market, a stronger macroeconomic outlook will also encourage investor-driven demand. As a result, the macro environment now supports a gradual recovery in housing demand, rather than a rapid or debt-driven upswing.
Conclusion
Overall, the housing market outlook for 2026 points to the early stages of a durable and balanced recovery. Anchored inflation, easing but disciplined monetary policy, improving real incomes and structurally constrained supply create an environment conducive to steady growth in activity and moderate house price inflation. Unlike previous cycles, this recovery is not driven by aggressive credit expansion or speculative behaviour. Rather, it reflects a gradual normalisation following an extended adjustment period, with fundamentals playing a more prominent role. As a result, 2026 is likely to mark the transition from post-tightening stabilisation to a measured expansion phase across the housing market.
Week in review
The manufacturing PMI increased by 8.2 points to 48.7 in January. All subcomponents improved relative to December, with business activity rebounding into expansionary territory, rising from 46.1 in December to 51.4 in January. The new sales orders index climbed by 10 points to 45.4 from 35.4 previously, driven mainly by stronger domestic demand. In contrast, export sales were negatively affected by the stronger rand. The inventories index returned to more normal levels in January following a sharp decline in December, providing support to the headline PMI. The employment index also improved, increasing to 43.9 from 39.9 as it recovered from its December downturn. The index tracking expected business conditions edged only slightly lower, from 68.8 to 66.4, but remains nearly 10 points above the 2025 average and still signalling expectations of a meaningful improvement in business conditions over the next six months. That said, the PMI has been volatile, and the manufacturing sector's performance is underwhelming. Ultimately, much needs to be done to improve South Africa's industrial base.
Headline inflation was recorded at 3.6% y/y in December, up from 3.5% in November. Monthly pressure was 0.2%, mainly driven by rising services costs and higher fuel prices. Core inflation was 0.1% m/m and 3.3% y/y, slightly up from 3.2% previously. Average fuel prices rose by 1.6% m/m and were 0.6% higher than at the same time last year. Food and non-alcoholic beverages (NAB) inflation was unchanged at 4.4% y/y but posted monthly pressure of 0.2%. On average over 2025, headline inflation was 3.2%, down from 4.4% in 2024. We see inflation slowing further this year, starting with 3.3% in January.
Electricity production declined by 7.9% y/y in December, following a 7.3% decline in November. On a seasonally adjusted basis, generation declined by 1.4% m/m, after a 1.3 m/m decline in November. Looking at the broader trend, electricity generation declined by 3.2% in the three months ending December, compared with the previous three- month period, pointing to a drag on 4Q25 GDP growth.
Gross foreign exchange reserves rose to $80.2 billion in January, up from $75.9 billion in December. The increase largely reflected higher US dollar gold prices, the maturity of forward exchange contracts undertaken for liquidity management purposes, valuation effects from foreign exchange and asset price movements, and foreign exchange purchases. Foreign exchange reserves increased to $52.9 billion from $51.8 billion, while gold reserves climbed to $20.7 billion from $17.5 billion. Holdings of Special Drawing Rights (SDRs) also edged up, rising to $6.67 billion from $6.60 billion.
Week ahead
On Thursday, mining production for December will be released. Mining production (not seasonally adjusted) contracted by 2.7% y/y in November, down from 6.1% growth in October. Seasonally adjusted mining output fell sharply by 5.9% m/m, down from 2.7% in the prior month. The largest negative contributors were coal, iron ore, PGMs, and gold, while manganese ore was the largest positive contributor. In the three months to November, output increased by 1.6%, slowing from 2.1% in the preceding three months to October 2025, suggesting a weaker contribution from the mining sector to 4Q25 GDP growth.
Also on Thursday, manufacturing production data for December will be released. Manufacturing output declined by 1.0% y/y in November, following a 0.4% increase in October. The largest negative contributors were wood and wood products, paper, publishing, and printing. Seasonally adjusted output also slipped 1.1% m/m, reversing October's 1.0% gain. Manufacturing production increased by 0.6% in the three months ending November 2025 compared to the previous three months.
