Property market remains resilient, but affordability pressures are starting to show

South Africa's residential property market continues to show remarkable resilience despite a challenging economic environment, but the latest data suggests affordability pressures are beginning to leave a more visible mark on buyer activity.

According to FNB's latest Property Barometer, house prices continued to outperform inflation in May, with the FNB House Price Index (HPI) recording annual growth of 5.6%, compared to consumer inflation of 4.5%.

While the market remains fundamentally healthy, estate agents are becoming more cautious as rising living costs, higher fuel prices, and tighter household budgets start influencing buyer behaviour.

House prices still growing faster than inflation

The FNB House Price Index slowed slightly from 6.1% in March to 5.6% in May, but remains firmly in positive territory.

This means that, despite increasing economic pressures, residential property values are still growing faster than inflation, preserving real value for homeowners.

However, the pace of monthly growth has moderated significantly. Monthly house price growth slowed from 0.6% at the start of the year to just 0.1% in May, suggesting that while prices continue to rise, the market is beginning to feel the effects of weaker affordability.

FNB notes that demand remains stronger than supply overall, with the market strength index remaining positive at 52.44. However, demand has softened faster than supply since March, creating conditions that are becoming slightly more favourable for buyers.

Inflation pressures are weighing on households

The moderation in housing market activity comes as consumer inflation accelerated to 4.5% in May from 4.0% in April.

The biggest contributor was transport inflation, which surged to 9.4% year-on-year after petrol prices increased by more than R3 per litre and diesel prices by more than R6 per litre earlier in the month. Fuel inflation alone reached 28.7%. At the same time, housing and utilities costs remain elevated, increasing by 5.3% year-on-year. Electricity inflation stood at 9.4%, while municipal rates and other utility charges rose by 6.9%.

These increases are putting pressure on disposable income at a time when many households are already managing higher borrowing costs.

Commenting on the latest inflation figures, independent economist John Loos noted that he expects "a slowdown in real household disposable income growth" as rising inflation and higher interest rates increasingly eat into household finances.

While food inflation remains relatively subdued at 1.9%, the combination of rising transport and utility costs is making it increasingly difficult for many aspiring homeowners to save for deposits or qualify for home loans.

Estate agent confidence declines

The impact of these affordability pressures is becoming increasingly evident in FNB's Estate Agent Survey.

National satisfaction with market conditions fell sharply from 77% in the first quarter of 2026 to 59% in the second quarter. While agents generally remain positive about market conditions, the decline suggests growing concern about the ability of buyers to absorb higher living costs and interest rates.

KwaZulu-Natal recorded the largest drop in satisfaction levels, falling from 66% to just 31%. The lower-priced segments of the market also experienced the biggest decline in confidence, while higher-value properties continued to perform relatively well.

This supports FNB's view that households with stronger financial buffers are currently driving much of the market activity. Loos similarly expects consumers to reprioritise spending as inflation pressures increase, with slower growth anticipated in discretionary spending and major purchases, which could further affect activity in the more affordability-sensitive segments of the housing market.

Homes are selling faster

Despite the decline in confidence, activity levels remain surprisingly resilient.

The average time properties spend on the market improved to approximately 10 weeks and six days, around one week faster than in the previous quarter. This suggests that well-priced properties continue to attract buyers, even as affordability pressures mount.

The Western Cape remains the standout performer, with estate agents rating activity at 6.5 out of 10, up from 6.1 previously. Gauteng's activity rating softened from 6.1 to 5.8, while the Eastern Cape experienced a notable decline from 7.0 to 6.1.

First-time buyers are feeling the pressure

Perhaps the clearest sign of growing affordability challenges can be seen in the first-time buyer market. The proportion of first-time buyers declined from 40% in the first quarter to 32% in the second quarter. FNB attributes this decline largely to affordability constraints and stricter lending conditions.

The survey also revealed a behavioural shift among financially pressured homeowners. Instead of selling and purchasing a cheaper property, many sellers in the lower-priced segments are now choosing to rent.

This highlights the growing difficulty many households face in securing mortgage finance or maintaining homeownership in an environment of rising living costs.

Loos expects inflation pressures and higher borrowing costs to result in "slower credit-dependent home buying in the near term", a view that aligns closely with FNB's findings around weakening first-time buyer participation and affordability constraints.

What does this mean for buyers and sellers?

For sellers, the data suggests that demand remains healthy, particularly for correctly priced properties and homes in desirable locations. The reduction in average time on market indicates that buyers are still active and willing to transact when value is evident.

For buyers, conditions may gradually become more favourable as demand softens and affordability constraints limit competition in some segments.

However, higher transport costs, municipal charges and borrowing costs continue to place pressure on household budgets, making affordability calculations more important than ever.

Outlook: resilience remains, but risks are rising

The latest property and inflation data paint a picture of a market that remains resilient but is becoming increasingly sensitive to affordability pressures.

House price growth continues to outperform inflation, homes are selling in just over ten weeks on average, and activity remains strongest in the Western Cape and higher-priced segments.

However, affordability pressures are becoming harder to ignore. Rising fuel costs, elevated utility inflation and tighter household finances are reducing the participation of first-time buyers and placing pressure on the middle market.

Loos expects one further 25 basis point interest rate increase in July before the current hiking cycle comes to an end, provided the recent improvement in global oil prices continues.

For now, South Africa's property market continues to hold up remarkably well. But the combination of slowing buyer activity, weaker estate agent sentiment and growing affordability challenges suggests that the second half of 2026 could become more demanding, particularly for first-time and lower-income buyers.

The FNB Property Barometer shows that resilience remains intact, but the latest inflation data explains why cracks are beginning to emerge beneath the surface.