By Siphamandla Mkhwanazi & Koketso Mano.
FNB HPI: A slow, but steady grind
The latest FNB House Price Index (HPI) averaged 0.9% in December, slightly lower than 1.0% in November (revised from 0.8% y/y) (Figure 1). This takes the annual average house price growth to 0.8%, lower than the 1.5% in 2023, but in line with our forecast. Our proprietary market strength indicators suggest that demand is expanding modestly, while the supply of properties for sale continues to shrink. These dynamics suggest a slightly favourable environment for property values (Figure 2). However, real house prices remain undervalued relative to market strength indices, reflecting buyer caution despite improving conditions, likely shaped by the lasting aftermath of the cost-of-living crisis.
Nevertheless, we maintain a cautiously optimistic outlook, supported by easing inflation, declining borrowing costs, improving real incomes, and strengthening consumer sentiment. House price growth is projected to climb to 1.7% in 2025, with a gradual acceleration to exceed 3% by 2026, as market fundamentals improve.
These trends are mirrored in the FNB Estate Agents Survey, which sheds light on activity and sentiment across different price segments and regions.
Estate Agents Survey 4Q24: Market activity gains
Market activity ratings rose to 6.0, up from 5.8 in 3Q24, marking the highest level since 4Q22, at the start of interest rate normalisation path (Figure 3). Activity is now roughly in line with the long-term average of 5.9, signalling normalisation after the turbulence of recent years. Growth is shifting toward middle-to-high-price segments, buoyed by improved sentiment, lower borrowing costs, and easing household financial pressures. The improvement was broad-based across regions, with KwaZulu-Natal and Gauteng leading the gains, both rebounding from relatively low bases.
While 54% of agents expect stronger market momentum in Q1, this is slightly less optimistic than the 58% in 3Q24. Agents in lower-priced segments anticipate the most significant boost from falling interest rates, reflecting heightened demand and sensitivity to interest rate changes in this market.
Sentiment slightly hesitant in 4Q24
Agent sentiment presented a mixed picture in 4Q24. Overall satisfaction with market conditions eased slightly to 61%, from 62% in the previous quarter (Figure 4). Confidence was strongest in the R2.6-R3.6m price range (71%), consistent with rising activity levels in this bracket. By contrast, confidence in the less than R750k and R750k-R1.6m segments weakened, likely reflecting lingering affordability challenges. By region, Gauteng led improvements, with satisfaction climbing to 74% from 68%. KwaZulu-Natal also improved, reaching 47% (from 38%), though sentiment remains subdued. The Western Cape saw a decline to 55% (from 61%), while the Eastern Cape dropped sharply to 36% (from 62%), marking the lowest confidence level across regions. This underscores how regional economic conditions and housing dynamics influence market sentiment.
Slightly shorter selling times
The uptick in market activity has shortened selling times, with properties now spending an average of 11 weeks on the market, down from 11 weeks and two days in 3Q24 (Figure 5). The largest improvement was seen in the R2.6-R3.6m price segment, where selling times decreased by two weeks, dropping from 11 weeks and two days to nine weeks and two days, driven by rising demand. Regional improvements were driven by the Western Cape and KwaZulu-Natal markets.
Reasons for selling
The survey highlights persistent financial pressures as a key driver of property sales (Figure 6):
Conclusion
The housing market shows encouraging signs of recovery, with improving sentiment, shorter selling times, and increasing activity in middle-to-high-price segments. However, affordability challenges and the lingering effects of the cost-of-living crisis continue to weigh on certain areas of the market, particularly the affordable segment. Financial pressures remain a dominant theme, but easing inflation and borrowing costs should gradually provide relief. As market fundamentals improve, the groundwork is being laid for a more sustained recovery. While challenges persist, the ongoing positive momentum suggests that the housing market is poised for a stronger performance in the coming years.
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 State.
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.
