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

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

FNB's 1Q25 report reveals rising sentiment, but affordability and slow sales hinder housing market recovery.
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Key topics:

  • Positive sentiment rises, but sales and selling times remain sluggish

  • Affordability issues persist, hitting low - and mid-income buyers hardest

  • Modest house price growth expected; recovery remains slow and uneven

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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  <R750k=45%; R750k-R1.6m=35%; R1.6m-R3.6m=15%, >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.”

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