FNB House Price Index shows 4.5% growth in August, signalling market recovery

FNB House Price Index (HPI) released  on Monday indicated that the index accelerated to 4.5% year-on-year (y/y) in August, up from 4.4% in July. 

FNB said thatThis marks the fastest annual house price growth in over three years, last seen in May 2022 when interest rates were significantly lower (275-basis points below current levels). Seeff Property Group have welcomed the findings of the Index.

Siphamandla Mkhwanazi, Senior FNB Economist said that this is also the fourth consecutive month of real house price growth. “The Western Cape continues to lead in house price growth, underpinned by robust demand fundamentals. Meanwhile, Gauteng and KwaZulu-Natal (KZN), which showed stagnant growth earlier in the year, are now gaining momentum.”

Mkhwanazi added that recent data points to a turning point for these regions, with price growth picking up from a relatively low base.

“As a result, the gap between the Western Cape and other provinces is narrowing, with broader regional contributions suggesting a geographically expanding recovery. Despite improving demand and rising prices, mortgage lending remains subdued,indicating that the recovery is not yet credit driven.”

Mkhwanazi said that according to South African Reserve Bank (SARB) data, outstanding mortgage balances grew only 2.0% y/y in July, a rate that has remained in a narrow range for several months.

“This reflects a muted expansion in housing credit, suggesting that banks are not significantly increasing new mortgage lending, and/or consumers are cautious about taking on more housing debt. Either way, credit prudence continues to dominate.”

Mkhwanazi  added that a key question going forward is whether the credit cycle will begin to reinforce the housing market recovery. “If interest rates remain stable or decline further, improved affordability could encourage more buyers to finance purchases, and banks may become more willing to extend home loans. A pickup in mortgage lending would provide an additional tailwind to sustain house price growth.”

Mkhwanazi said that in the meantime, the combination of cooling inflation, dovish monetary policy, and pent-up housing demand suggests that the positive momentum in house prices is likely to continue in the near term. “The market resilience, evidenced by house prices rising faster than inflation even in a high-rate environment, is encouraging. However, a broader-based recovery would be more assured if accompanied by a rebound in credit growth. We will be watching these developments closely in the coming months.”

Samuel Seeff, the chairman of Seeff Property Group said that the news that price growth is finally heading upwards as shown by FNB reporting 4.5% growth in August, up notably from the 1.2% reported in January is great news.

“It also now outpaces inflation and is reflective of the increased demand, particularly prevalent in the second quarter which has led to a significant depletion of stock levels including those in the inland provinces such as Gauteng. The increased volumes are also reported by the banks and mortgage originators.”

Seeff added that while it still remains largely a buyer's market (outside of the buoyant Cape market) due to the weak price growth of the last 2 years, the higher demand and positive price growth is great news for sellers and with the depleting stock levels, opens opportunities for those who want to sell and perhaps take advantage of the flat prices to buy up.

“The interest rate hikes are obviously having an effect on demand, but we would continue to advocate for more rate cuts to bring the interest rate back in line with the pre-pandemic rate, and bring affordability down further.”

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