By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Since the beginning of the current interest rate cutting cycle, mortgage lending has remained underwhelming. In the seven months leading up to the first rate cut, outstanding mortgage balances grew by an average of 2.8%, according to the South African Reserve Bank's data. In the seven months following the cut (data-to-date), growth slowed to just 2.3%. When adjusted for house price inflation, these figures drop to 2.1% before the cut and a mere 0.7% afterward.
Yet, during this same period, FNB's Estate Agents Survey has consistently reflected relatively upbeat sentiment among agents—driven by buyer inquiries, property viewings, and expectations for future activity. This optimism is further supported by a recovery in the agents' activity rating, which has returned to its long-term average (Figure 1). The disconnect suggests that while interest in property remains, it is not translating into financed transactions.
In previous reports, we proposed two main explanations for this divergence:
1. Affordability constraints-especially in lower-priced segments
Despite improvements in wage growth and a slowdown in inflation—factors that should enhance purchasing power—lower-income buyers remain largely absent from the market. This is puzzling, especially since these buyers are typically more responsive to interest rate changes.
One explanation is that interest rates haven't fallen quickly or significantly enough to entice these buyers. However, a more compelling reason may be the lack of affordable housing options. The turnover rate for existing affordable homes is low, and new supply at accessible price points—particularly near employment hubs—is severely limited. As a proxy, the share of newly-built homes smaller than 80m2 (often used to represent affordable housing) has plummeted from 67% of total new stock in 2000 to just 20% in 2024 (Figure 2).
2. Lingering psychological effects of the cost-of-living crisis
Although difficult to quantify, the psychological impact of recent economic hardship may be causing continued buyer caution. Even as macroeconomic indicators improve, uncertainty about the future may still be weighing on consumer confidence.
A third factor? The role of the cash market
One area we haven't previously explored in depth is the cash market. There has been a noticeable uptick in buy-to-let transactions, typically driven by high-income households with stronger balance sheets who are generally less reliant on credit. Could estate agent sentiment be reflecting more buoyant cash sales?
Deeds data shows that while cash sales have become more prominent since the pandemic, they have not fully offset the weakness in mortgage activity during the current rate-cutting cycle. In fact, mortgage-backed transactions have increased from 48% in 1Q24 to 54% in 1Q25 (Figure 3), suggesting a modest recovery in financed purchases rather than a cash-driven market.
Conclusion
While estate agents continue to report strong interest from potential buyers, many of these prospects still lack the financial capacity or the urgency to follow through. That said, several of the factors that previously dampened demand—such as high inflation, stagnant wages and heightened uncertainty—have begun to ease. With interest rates continuing to decline, the conditions for a recovery in mortgage-financed transactions are slowly falling into place. Moreover, house prices have grown more strongly than anticipated in recent months. This may be an early signal that sellers are regaining some pricing power, reflecting tightening of supply and potentially renewed confidence in the market. If sustained, this trend could further shape buyer behaviour and influence the pace of recovery in transaction volumes.
Week in review
The FNB/BER Building Confidence Index for 2Q25 dropped to 36 index points in 2Q25, down from 41 previously, indicating that nearly two-thirds of respondents are dissatisfied with current business conditions. The biggest drag came from hardware retailers, whose confidence fell by a massive 24 points, mainly due to rising labour costs that hurt profitability—even though sales volumes held up. Main and sub-contractors also reported weaker sentiment, especially in the residential sector, where activity and profitability continued to decline. On the other hand, the non-residential sector is holding up better, supported by demand for industrial and office space. There were some bright spots: architects and quantity surveyors reported strong growth in work, suggesting that building activity could pick up in the coming quarters, with quantity surveyor confidence rising to 50, the highest since 2017. However, delays in project approvals and client payments remain a concern and could dampen expectations of near-term activity.
Manufacturing output (not seasonally adjusted) declined sharply by 6.3% y/y in April, following a revised 1.2% contraction (previously -0.8%) in March. Seasonally adjusted output rose by 1.9% m/m, though this fell short of fully reversing the 2.5% monthly decline recorded in March. Nonetheless, this marks a moderately better start to 2Q25, although the persistent annual decline underscores ongoing unfavourable operating conditions and is consistent with our assessment of downside risks to the near-term economic growth outlook.
Mining production (not seasonally adjusted) remained weak into the start of 2Q25, with output contracting sharply by 7.7% y/y in April following a 2.5% decline in March (revised from -2.8%). This marked the sixth consecutive month of annual decline. The outcome was worse than the Bloomberg consensus forecast of a 4.0% decline and largely reflected the disruptive impact of breakdowns and third-party supply issues affecting Platinum Group Metals (PGMs). Seasonally adjusted mining output rose modestly by 0.6% m/m, a moderation from the 3.6% monthly increase recorded in March.
Week ahead
On Wednesday, the Consumer Price Index (CPI) for May will be published. In April, headline inflation ticked up marginally to 2.8% y/y, up from 2.7% in March. Monthly inflation registered at 0.3%, driven primarily by rising prices in food and non-alcoholic beverages (NAB), with meat and vegetables being the main contributors. Despite this uptick, we continue to anticipate subdued inflation in the coming months, supported by softer oil prices, a strengthening rand, and sluggish economic activity.
Also on Wednesday, retail sales data for April will be released. In March, volume sales rose by just 1.5% y/y, down from 4.1% in February. On a monthly basis, sales volumes dipped by 0.2%, following a steeper 1.2% drop in in the previous month, suggesting that household spending is losing momentum, which could weigh on broader economic growth. The slowdown was likely due to fading support from once-off large-scale two-pot pension withdrawals, as well as rising uncertainty both at home and abroad.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 10-Jun | SA | Manufacturing production % y/y | Apr | -6.3 | -1.2 |
| SA | Manufacturing production % m/m | Apr | 1.9 | -2.5 | |
| 12-Jun | SA | Mining production % y/y | Apr | -7.7 | -2.5 |
| SA | Mining production % m/m | Apr | 0.6 | 3.6 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 18-Jun | SA | CPI % y/y | May | 2.8 | 2.8 |
| SA | CPI % m/m | May | -- | 0.3 | |
| SA | CPI Core % y/y | May | 3.1 | 3.0 | |
| SA | CPI Core % m/m | May | -- | 0.1 | |
| SA | Retail sales % y/y | Apr | -- | 1.5 | |
| SA | Retail sales % m/m | Apr | -- | -0.2 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 97,029.34 | 0.60% | 5.30% | 25.90% |
| USD/ZAR | 17.78 | 0.20% | -2.70% | -3.30% |
| EUR/ZAR | 20.59 | 1.40% | 1.70% | 3.60% |
| GBP/ZAR | 24.2 | 0.60% | 0.60% | 2.90% |
| Platinum US$/oz. | 1,298.59 | 13.90% | 32.10% | 35.00% |
| Gold US$/oz. | 3,385.92 | 1.00% | 4.60% | 45.60% |
| Brent US$/oz. | 69.36 | 6.20% | 6.80% | -16.00% |
| SA 10 year bond yield | 10.09 | 0.60% | -3.90% | -14.20% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 2.1 | 0.8 | 0.5 | 1.1 | 1.6 | 1.9 |
| Household consumption expenditure % y/y | 2.6 | 0.2 | 1.0 | 2.4 | 2.0 | 2.1 |
| Gross fixed capital formation % y/y | 5.9 | 3.0 | -3.9 | 0.9 | 2.7 | 3.6 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 3.5 | 4.3 | 4.3 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 4.3 | 4.2 | 4.3 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USD/ZAR (average) | 16.40 | 18.5 | 18.3 | 18.3 | 18.5 | 18.6 |
