South Africa's housing market recovery is experiencing an uneven growth, with affordability pressures limiting demand from first-time and middle-income buyers. According to FNB's Residential Property Barometer, house prices continue to rise, and homes are selling faster. However, the recovery is primarily driven by those with greater spending power, rather than a broad-based improvement in demand. This has resulted in an uneven market, with constrained supply and stronger buyers supporting prices.
The FNB house price index increased by 4.9% year on year in August, which is a slowdown from 5.3% in July and 6% earlier in the year. FNB expects growth to moderate towards 4.5% for the remainder of 2026, as economic activity slows and borrowing costs remain elevated. Transaction volumes are facing greater pressure than prices, particularly among households trying to enter the market. First-time buyers accounted for only 26% of activity in the latest survey, down from 32% in May and below the level recorded a year earlier.
Subdued household income growth and restrictive financing conditions are limiting demand, particularly in the middle and lower ends of the market. Despite this, transactions are becoming more efficient, with the average property taking 10 weeks and one day to sell, the fastest pace recorded since 2022. About 75% of transactions are still concluded below the asking price, but the average discount is only 8%. This has lifted estate-agent sentiment, with 63% of agents satisfied with prevailing market conditions, up from 59% in the second quarter.
The outlook for the housing market is more positive, with 51% of agents expecting activity to increase over the next three months, compared with only 20% in May. However, current activity weakened to 5.7 out of 10 from 6 previously, with only 15% of agents describing the market as highly active. The divide is clearest across price brackets, with properties above R3.6m recording the strongest activity rating at 6.3 out of 10, and agent satisfaction at 72%.
Cash-rich and financially resilient buyers are providing greater support to the higher end of the market. In contrast, properties below R750,000 have relatively strong success rates when correctly priced but take the longest to sell, at 11 weeks and two days. The middle of the market remains squeezed by affordability, debt-servicing costs, and weak income growth. Cash buyers account for about 20% of activity, helping to offset some of the weakness among mortgage-dependent households.
The regional picture is also uneven, with Western Cape properties selling in an average of four weeks and six days, while Gauteng has the longest selling period at 12 weeks and four days. About 83% of Gauteng transactions are concluded below the asking price, giving buyers greater negotiating power. Against a backdrop of a 0.2% quarter-on-quarter contraction in GDP in the second quarter, subdued income growth, and elevated borrowing costs, FNB expects prices to continue rising modestly.
However, the survey suggests that the bigger pressure may increasingly be felt in transaction volumes rather than headline prices, as affordability keeps would-be buyers out of the market. The latest interest rate hike is expected to put further pressure on the residential property market. According to Pam Golding Properties CEO Andrew Golding, the increase reinforces the need for buyers to be discerning about affordability and financing costs.
Key points
- Affordability pressures are limiting demand from first-time and middle-income buyers.
- The housing market recovery is primarily driven by those with greater spending power.
- Transaction volumes are facing greater pressure than prices.
