FNB housing market insight: Positive sentiment amid slow sales 1Q25

Key topics:Positive sentiment rises, but sales and selling times remain sluggishAffordability issues persist, hitting low - and mid-income buyers hardestModest house price growth expected; recovery remains slow and uneven.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.The auditorium doors will open for BNIC#2 on 10 September 2025 in Hermanus. For more information and tickets, click here..By Alison Goldberg .Estate agents reported a surge in positive sentiment with activity ratings reaching a three-year high in 1Q25, according to the latest (May) FNB Property Market Report. However, market outcomes are still modest it found, as reflected in slow transaction volumes growth and slightly longer-selling times (from 11 weeks in 4Q24 to 12 weeks and one day in 1Q25). “Deeds office data indicates that transaction volumes remain significantly (approximately 16%) below pre-pandemic levels (4Q19) suggesting a protracted recovery in market activity,” FNB senior economist Siphamandla Mkhwanazi says. Mkhwanazi says the divergence between positive sentiment and market outcomes suggests lingering caution among buyers, potentially due to the ongoing impact of the pandemic-induced cost-of-living crisis, further exacerbated by global uncertainty. “Many prospective buyers, particularly in the affordable segments (<R750k), may still face significant hurdles related to affordability. “The recent dip in consumer confidence due to heightened global and domestic uncertainty is likely to disproportionately impact the affluent segments, potentially leading to slower sales and price stagnation.” The FNB/Bureau for Economic Research Consumer Confidence Index plunged by 16 points in 1Q to -20 as tax shocks and deteriorating US/SA relations rocked sentiment, especially among high income households, he explains. “In the lower-priced segments, potential interest rate cuts by the South African Reserve Bank and a potential 10% increase in the transfer duty threshold could stimulate demand. These factors suggest a potential shift in demand towards more affordable housing options amid increasing uncertainty. “With the House Price Index (HPI) averaging 1.8% year to date, there is an upside risk to our 1.9% forecast for 2025. We currently project house price growth to approach the 3% mark by 2026.” The May FNB House Price Index reveals a continued, albeit modest upward trajectory in home values he points out, averaging 2.2% y/y in April, up from 2.0% in March. “This represents the fastest pace in approximately two years (since March 2023).” In FNB’s 1Q25 Estate Agents Survey, estate agent-reported market activity rose by 5% in 1Q25 compared to 4Q24, reaching 6.3 (out of 10) from 6.0. “This level slightly surpassed the long-term average of 5.9, suggesting a normalization following recent market volatility. Agents reported stronger activity in the affordable market (<R750k) at 6.65 compared to 6.17 in the traditional market. Interestingly however, activity growth in the middle-to-high price segments is outpacing that in the lower-price segments, underscoring persistent affordability challenges for lower-income earners. Regionally, activity growth was mixed with KZN and the Eastern Cape experiencing declines, while Gauteng and the Western Cape continued their upward trajectory.”How big are these markets? According to Deeds data estimates, based on new activity, the R3.6m approximately 5%, he reports. “Looking ahead to 2Q25, overall agent expectations for stronger market momentum have softened, with 46% anticipating increased activity, down from 54% in the previous quarter. Notably, a significant divergence exists across price segments. 60% of agents in lower-priced segments expect higher activity, compared to only 40% in the traditional market. This suggests an anticipation that further interest rate cuts – the latest to 10.5% - will stimulate the lower end of the market, while the heightened global and domestic uncertainty, including strained US|SA relations, are expected to dampen confidence in the upper segments. These contrasting expectations highlight the intricate sensitivities within the housing market.” Despite the more cautious future outlook, the bank found “agent satisfaction with current market conditions improved to 68%, up from 61% in the previous quarter. Confidence was particularly strong in the R2.6-3.6million price range (84%), aligning with the rising activity observed in this segment. “Conversely, confidence levels remained the lowest in the <R750k-R1.6m brackets (58-59%), reflecting ongoing affordability constraints.” Regionally the bank found that Gauteng exhibited the highest confidence at 75%, followed by the Western Cape (68%) and the Eastern Cape (66%). KZN also saw a marginal improvement in sentiment, from 47% to 49%, although climate-related infrastructure damage continues to weigh on confidence, it says. Persistent financial pressures drive sales the FNB Estate Agents Survey 1Q25 found. “The survey underscores the continued significance of financial pressures as a key motivation for selling. Financially pressured sales decreased to 22% from 26% in 4Q24 but remain above the long-term average of 18%. Encouragingly, most financially pressured sellers are opting to downsize (59%) rather than rent, highlighting the enduring value placed on homeownership. These sales are more prevalent in the low-to-mid priced segments. Life-stage downscaling accounted for 24% of sales, with retirees remaining a significant contributor to property transactions. Emigration-related sales remained low at 5%, below the long-term average of 9%, indicating a continued easing of emigration pressures. Upgrading activity remained stable at 11% of sales, showing no significant signs of sustained improvement despite lower borrowing costs.” .Mkhwanazi concludes: “Overall, while agent sentiment and reported activity show signs of improvement, the persistent affordability challenges, lengthening selling time and the continued prevalence of financially pressured sales underscore the underlying economic realities shaping the housing market’s gradual ascent. These micro-level disparities, help explain the moderate pace of overall house price growth observed in the HPI and highlight the nuanced recovery underway.” You Realty CEO Trevor Richter responded with his analysis, noting a subdued market, low confidence in government, and seller-buyer price gaps: “The housing market appears to be still subdued and there does not appear to be much on the horizon that would radically shift this. I feel that there is pretty low confidence in the government and its ability to deliver services. Crime is also a problem but the most important factor I feel is the very high unemployment rate. “A buoyant housing market needs strong employment and we do not have that. I recently read an article that said the average first time home buyer is 37 years of age. This to me feels very old for first time home buyers and if this drops significantly it would have a very significant impact on the market. “There is also a very significant gap between what sellers want and what buyers can afford or want to pay. This inefficient way of pricing also leads to a negative impact on the property market.” Chairman of Rode and Associates (Pty) Ltd Erwin Rode says “the best summary I can give you is the first few paragraphs of the latest first quarter Rode Report. “After several years of sluggish growth, nominal house prices in South Africa are beginning to recover, albeit modestly. Factors supporting the market include lower inflation, higher salaries, and a slight decline in interest rates in comparison to 2024. Funds received from the two-pot retirement system (allowing pension contributors to withdraw x% of their saved capital in cash before retirement – big mistake!) have also enhanced the purchasing power of certain households. However, one should not be overly optimistic about house price growth, as only slow economic growth of 1% to 1.5% is anticipated for 2025. .“In the chart, we present the change in nominal house prices, based on data from FNB and Lightstone. Both indices indicate that price growth bottomed out in 2023/24 and has begun a slow recovery. “FNB’s index increased by 1.8% during the first four months of 2025. This signifies that growth has accelerated after rising by 0.8% in 2024 – marking the slowest increase in 15 years. Price growth averaged 2.2% in April 2025. However, prices in real terms (after deducting consumer inflation) have continued to decline, albeit at a slower pace than before. “Lightstone’s index shows relatively faster nominal house price growth of 3% to 4% over the first four months of 2025. This was slightly higher than the average inflation rate or CPI rate of 3% over the same period. “In the text below, we first discuss the factors influencing changes in house prices and then conclude with the outlook for the housing market. “As shown in the chart, house prices correlate somewhat with the value of residential mortgages granted, with r(superscript 2)=0.4%. This indicates the value of mortgages granted explains about 40% of the changes in house prices, without accounting for other determinants. From the chart, causality varies occasionally, but the turning points tend to coincide on average. Perhaps the chain of events is: “Changes in household incomes and interest rates result in fluctuations in house prices, which in turn affect churn (number of sales) rates and subsequently influence the value of mortgage bonds granted.” Says Rode: “The international economic environment is uncertain and this also impacts SA. Economists have, therefore, been reducing their forecasts for economic growth for SA and the consensus now is growth of between 1% and 1.5% this year. This is not much better than last year’s 0.7%. “The main drivers of house prices and churn are interest rates (inverse relationship) and household incomes after inflation (positive relationship). The consensus is that interest rates are now probably close to the bottom of the cycle, especially as the South African Reserve Bank is mooting a lowering of the inflation target to 3%. As the economy is still not spurting, not much help is to be expected here either. “Thus, my guess is that the housing market will be similar in 2025 to 2024. At best, we could expect house prices to grow at the CPI rate, which in turn would be similar to the inflation rate of last year.”

FNB housing market insight: Positive sentiment amid slow sales 1Q25

Related Stories

S&P keeps SA on a positive leash: Rational reality behind treasury’s victory lap

GHL to GNU: Abandon leftist dogma for proven economic growth

Electricity price relief on the horizon for South Africa

Hlelo Giyose: The many ways gold is misunderstood