South Africa's house price growth slows as higher borrowing costs weigh on demand

The South African residential property market continued to lose momentum in June, with annual house price growth easing despite limited housing supply continuing to support prices.

According to the latest FNB Property Barometer, the FNB House Price Index (HPI) slowed to 5.2% year-on-year in June, down from 5.7% in May, while prices were unchanged on a month-on-month basis. Average house price growth for the second quarter of 2026 also moderated to 5.6%, compared with 6.0% in the first quarter.

Although house price inflation remains slightly above South Africa's June consumer inflation rate of 5.0%, the gap between the two has narrowed considerably compared with earlier in the year.

Higher borrowing costs are changing buyer behaviour

According to FNB, the market slowdown can be attributed to a more challenging environment for households.  

Higher borrowing costs, weaker consumer confidence and softer economic conditions are reducing demand for housing and are expected to continue weighing on market activity through the remainder of the year. As a result, the bank expects annual house price growth to slow further towards 4% by the end of 2026.

The findings reinforce a trend that has become increasingly evident throughout 2026: affordability is becoming one of the biggest factors influencing buyer decisions. 

While buyers may welcome a slower pace of price growth, securing a favourable home loan term remains just as important. Even a small improvement in an interest rate can translate into significant savings over the lifetime of a bond, making preparation before submitting a home loan more valuable than ever. 

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Despite softer demand, FNB does not expect house prices to decline broadly.

Instead, the report points to persistent supply constraints that continue to underpin the market. New residential development remains subdued, while fewer existing homes are being listed for sale. This shortage of available stock is helping to prevent a sharper correction in property values, even as transaction volumes soften.

Market conditions also reflect this balance. FNB's Market Strength Index currently sits at 52.20, indicating that demand still marginally exceeds supply, while the average time to sell a property remains 10 weeks and three days.

Rental market continues to strengthen

While activity in the ownership market has slowed, South Africa's rental sector continues to improve. National rental inflation increased to 4.1% year-on-year in June, with FNB noting that rental prices have continued to trend higher alongside declining vacancy rates.

The Western Cape remains the country's strongest rental market, supported by sustained in-migration, limited housing supply and tight rental conditions. Gauteng continues to experience stable rental demand, although a larger supply of housing stock has kept rental growth more moderate. KwaZulu-Natal is also seeing improving rental fundamentals, driven by ongoing urbanisation and household growth.

Interest rates offer some relief

The report follows shortly after the South African Reserve Bank decided to leave the repo rate unchanged at 7%, keeping the prime lending rate at 10.50%. FNB describes the decision as welcome relief for homeowners and prospective buyers.

Looking ahead, the bank expects inflationary pressures to peak during early 2027, potentially creating room for the Reserve Bank to resume lowering interest rates. Lower borrowing costs would improve affordability, stimulate mortgage demand and help stabilise housing market activity.

What buyers, sellers and landlords should expect

For buyers, slower house price growth may provide more negotiating room, but affordability remains under pressure. Getting pre-qualified, understanding your budget and securing the best possible home loan rate can make a meaningful difference in today's market.

For sellers, limited housing supply continues to support prices, but realistic pricing is becoming increasingly important as buyers remain cost-conscious and borrowing remains relatively expensive.

For landlords, strengthening rental demand and rental inflation of 4.1% indicate that the rental market continues to offer solid fundamentals, although FNB believes rental inflation is likely approaching its cyclical peak as affordability constraints begin limiting further rental increases.

Overall, while the pace of house price growth is expected to moderate further during the second half of the year, constrained housing supply continues to provide a solid foundation for the market, reducing the likelihood of widespread house price declines.