House price growth slows as higher borrowing costs weigh on demand

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South Africa’s house price growth continued losing momentum in June as elevated borrowing costs, weaker consumer confidence and slower economic growth curbed demand — although constrained housing supply continues preventing a sharper slowdown in prices.The latest FNB House Price Index showed annual house price growth eased to 5.2% in June, from 5.7% in May, while prices were flat month on month. Average house price growth also moderated to 5.6% in the second quarter, compared with 6% in the first three months of the year.Although house prices continued outpacing headline inflation, which measured 5% in June, the gap has narrowed considerably from earlier this year.FNB economist Siphamandla Mkhwanazi said the market was beginning to feel the effects of tougher economic conditions.“The moderation in price growth reflects a more challenging operating environment for households. Higher borrowing costs, weaker consumer confidence and softer economic conditions are weighing on housing demand and are likely to restrain market activity through the remainder of the year,” he said.FNB expects annual house price growth to slow further to about 4% by the end of the year.While weaker macroeconomic conditions are likely to suppress transaction activity, we do not expect a broad-based decline in house prices— Siphamandla Mkhwanazi, FNB economistDespite the softer demand, the bank said, low supply supported the market. Residential development remains subdued, while fewer existing homes are being listed for sale, cushioning prices.“This limited stock availability is preventing a more pronounced correction in house prices and should continue to provide support to valuations over the near term,” Mkhwanazi said. “As a result, while weaker macroeconomic conditions are likely to suppress transaction activity, we do not expect a broad-based decline in house prices.”The rental market has continued strengthening as affordability pressures keep more households in rental accommodation. Rental inflation accelerated to 4.1% in June, while vacancy rates continued trending lower.The Western Cape remained the country’s strongest rental market, supported by continued inward migration, particularly among higher-income households, limited housing supply and tight rental conditions. Gauteng’s rental market remained stable, although greater housing supply kept rental growth more contained, while KwaZulu-Natal also continued showing improving fundamentals.Looking ahead, FNB said the Reserve Bank’s decision to leave interest rates unchanged had provided some relief to households, but borrowing costs remained elevated.The bank expects inflationary pressures to peak in early 2027, creating room for the Bank to resume cutting interest rates, which should improve affordability, support mortgage demand and help stabilise housing market activity.FNB said rental inflation may be nearing its peak due to the pressure under which consumers find themselves.“While landlords have regained some pricing power, there appears to be a natural limit to the extent to which rents can rise before affordability becomes a binding constraint. Consequently rental inflation is likely close to its cyclical peak and should increasingly move in line with broader consumer inflation trends over the medium term.”Business Day