By Siphamandla Mkhwanazi & Koketso Mano.
Overview
The South African housing market enters 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.
Market Activity: Early signs of a demand-led recovery
Housing market activity indicators have begun to respond to the improving macro and affordability backdrop. Estate agent sentiment strengthened materially late in 2025 (75% in 4Q25), signalling improved selling conditions, increased buyer enquiries, and reduced selling times. In line with historical patterns, activity is expected to recover ahead of prices, with transaction volumes likely to lead the cycle during 2026.
This sequencing is characteristic of early-stage housing market recovery. Initial affordability gains are typically absorbed through higher market turnover rather than immediate price acceleration, particularly in an environment where household caution remains elevated after a prolonged tightening phase. As such, rising activity should be interpreted as a healthy signal of cyclical normalisation, rather than an indication of overheating.
Supply conditions: Structural support limits risk of excess
On the supply side, new residential construction activity continues to operate well below long-term norms, constrained by weak developer confidence, elevated building costs, and limited appetite for speculative development. As a result, the housing market faces no material risk of oversupply, even as demand gradually improves.
Cyclically, some improvement in housing completions was recorded in the latter part
of 2025, largely driven by increased apartment supply-possibly reflecting waning
demand for larger work-from-home spaces-as well as by entry-level ("small")
standalone housing, likely reflecting sustained demand for more affordable units.
Nevertheless, overall construction conditions remain subdued. The FNB Building
Confidence Index remained deeply negative at -37 in 4Q25, and despite some
late-2025 improvement, weak order books suggest that construction activity will
remain constrained in the near term.
These supply constraints continue to provide a floor for house prices, limiting
downside risks and ensuring that improving affordability translates primarily into
higher activity rather than price correction.
House price growth: Moderation not a sign of weakness
After reaching a cyclical high of 5.3% y/y in October 2025 and averaging 3.8% for the year, nominal house price inflation could moderate into a 3.5%-4.5% range in 2026. Nevertheless, this remains above our inflation forecast of 3.1%, implying continued, albeit modest, real house price appreciation.
Over the forecast horizon, as housing demand gradually recovers, price growth should be increasingly shaped by affordability dynamics, rather than by acute supply shortages alone. With inflation anchored close to target, this profile points to a lower-volatility house price environment, consistent with a more mature phase of the cycle.
Importantly, this moderation should not be interpreted as a weakening in housing market conditions. Rather, it reflects a shift toward a more sustainable and fundamentally aligned price formation, supported by the macroeconomic backdrop and improved household balance sheets.
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.
ADDENDUM - NOTES:
Note on The FNB House Price Index:
The FNB Repeat Sales House Price Index has been one of our repertoire of national house price indices for some years, and is based on the well-known Case-Shiller methodology which is used to compile the Standard & Poor's Case-Shiller Home Price Indices in the United States.
This "repeat sales approach" is based on measuring the rate of change in the prices of individual houses between 2 points in time, based on when the individual homes are transacted. This means that each house price in any month's sample is compared with its own previous transaction value. The various price inflation rates of individual homes are then utilized to compile the average price inflation rate of the index over time.
The index is compiled from FNB's own valuations database, thus based on the residential properties financed by FNB.
We apply certain "filters" and cut-offs to eliminate "outliers" in the data. They main ones are as follows:
Note on the FNB Valuers' Market Strength Index:
When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple "good (100)", "average (50)", and "weak (0)". From all of these ratings we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers' Residential Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and demand are equal.
