House prices and the critical role of interest rates in the economy

House price growth, especially outside of the Western Cape, has been largely dismal over the last two years. After growing at rates between 5% and 9% in the 2020-2022 period, it declined to as low as 0.5% by mid-2024.

Samuel Seeff, chairman of the Seeff Property Group, says interest rates have had a tremendous impact on the property market and house prices. Interest rates also impact people’s ability to afford their own homes and are an important measure of the health of the housing market and the economy.

If the interest rate is high and incomes are not growing, it becomes more challenging to afford property, and demand lowers. There is then reduced competition for properties on the market which keeps prices lower.

Conversely, if the interest rate comes down and incomes grow, property becomes more affordable, it becomes easier to obtain home loans, and more people can buy property. Competition for properties on the market increases, and buyers are then inclined to offer higher prices, resulting in higher price growth.

Seeff says this is well demonstrated when looking at house price trends since March 2020, when the onset of the COVID-19 pandemic occurred. In March 2020, the interest rate was 9.75%. The Reserve Bank then introduced a series of rate cuts between March and July, bringing the prime rate down to 7%.

This immediately made properties more affordable, bringing down the monthly repayment on a R1 million home loan over 20 years to R7,753 per month. The consequent increase in demand resulted in national house price growth of 4.10% for the 2020 year.

The subsequent incremental increases in the interest rate from late 2021 brought the prime rate to 11.25% by May 2023. This resulted in the monthly repayment on this R1 million home loan increasing to R10,493, thus an additional R2,740 monthly.

Property affordability declined, and with that, the demand for property in the market. National house price growth consequently declined to just 0.7% for the 2023 period, according to the StatsSA House Price Index.

While further interest rate cuts since late last year have brought the prime rate down to 11%, the repayment on the R1 million home loan has only come down to R10,322, thus resulting in a saving of R171 per month. National house price growth remained flat at about 0.8% for the 2024 year, according to FNB data.

While property market activity has increased, and confidence in the market has soared to the highest levels in a decade, according to an ABSA survey, data from FNB shows that house prices only increased by 1.1% in January. Clearly, more rate cuts are needed.

Seeff says there is ample reason for the Reserve Bank to provide further interest rate relief to consumers, the economy and property market next week. The interest rate is still well above what it was in early 2020, i.e. before Covid, yet inflation is at around 3.2%, near the bottom of the Reserve Bank’s target range of 3%-6%.


A lower interest rate will boost the economy and housing affordability, drive higher demand, and consequently boost house price growth. Strong house price growth is vital to encouraging further investment and development growth. A healthy housing market with strong growth delivers multiple economic benefits, including boosting economic and job growth as well as government revenue in the form of taxes.