By Siphamandla Mkhwanazi & Koketso Mano.
Overview: Property prices appear to be peaking
The FNB House Price Index (HPI) decelerated slightly to 4.7% y/y in November, down from a revised 5.0% in October (previously 4.9%) (Figure 1). Month-on-month growth has averaged 0.2% in the last three months, compared to 0.6% in the three months prior, signalling that the upward price trend is peaking. Nevertheless, our internal market strength indicators, particularly the demand index, spiked in November to the highest level in over 17 years (since June 2008) (Figure 2). While seasonality may be a factor, it could also be an early signal that the latest monetary policy developments, including the lowering of the inflation target and the subsequent interest rate cut, boosted market sentiment, prompting marginal buyers to bring forward their buying decisions.
Year-to-date growth stands at 3.6%, versus 0.8% in the same period last year, and 1.5% in 2023. That said, this is still lower than 6.8% and 4.4% in the same period in 2021 and 2022 respectively, when interest rates were at an ultra-low level.
Outlook
Lower borrowing costs, coupled with the likelihood of further monetary easing in 2026, are expected to stimulate buying activity and strengthen demand in the housing market. This supportive environment will help maintain upward pressure on property prices, particularly in supply-constrained segments such as sectional title units and leading metros. Subdued construction activity will exacerbate these dynamics by limiting new stock, ensuring that competition for existing properties remains intense and reinforcing both price resilience and rental inflation in high-demand regions.
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 States.
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.
