Despite the challenges posed by the Iran conflict, which led to increased oil and fuel prices, accelerated inflation, and higher interest rates, South African households showed surprising financial resilience in the second quarter of 2026, according to independent economist John Loos.

Consumer spending defies expectations

In the second quarter, real GDP contracted by 0.2% on a quarterly basis, but household consumption expenditure rose by 0.4% in real terms. Compared to the same period last year, real consumer spending grew by 2.9%, up from 2.5% in the first quarter. This growth occurred despite the Iran-US conflict driving up fuel prices, pushing consumer inflation higher, and contributing to an interest rate increase in May. Nominal household disposable income growth accelerated significantly, from 4.6% year-on-year in the first quarter to 7.8% in the second quarter, providing a key explanation for the resilience in consumer spending.

John Loos attributes the increase in nominal household disposable income to stronger investment income, as wage-bill growth slowed alongside weak employment growth. As a result, real disposable income growth accelerated from 1.3% to 2.97% year-on-year, offering consumers some protection against the deteriorating economic environment. However, the net household savings rate deteriorated further, from -1.3% of disposable income in the first quarter to -1.6% in the second quarter, indicating that some households may be vulnerable to unexpected expenses.

The relatively strong consumer data, however, masks a less reassuring trend. South Africa’s net household savings rate has continued to deteriorate, which could leave households more vulnerable to economic shocks. As Loos notes, “households with limited financial buffers are more vulnerable to unexpected increases in bond repayments, electricity and municipal charges, fuel and transport costs, food prices, insurance and maintenance costs, and other household expenses.”

Household debt trends show improvement

A notable surprise in Loos’s analysis is the improvement in household debt indicators during the second quarter. The household debt-to-disposable income ratio declined from 62.1% to 61.3%, its lowest level since 2019. Even the debt-service ratio, which measures interest paid on debt relative to disposable income, edged down from 9.5 to 9.4, despite the 25-basis-point interest rate increase in May. This improvement is particularly relevant to the property market, as the debt-service ratio can indicate the likely direction of future credit stress and arrears.

However, Loos cautions that the economic conditions supporting the second quarter’s relative resilience may not persist. He points to several pressures converging in the latter stages of 2026, including weakening economic growth, high oil prices, and a lagged monetary policy effect. The full impact of the May rate increase still needs to feed through the economy, while the South African Reserve Bank (SARB) implemented a second rate increase in late September.

Loos also expects another significant fuel-price shock, with petrol prices potentially increasing by more than R3 per liter in October, and diesel prices rising by a similar magnitude. This could push headline CPI back above 5% by October, raising the risk of another interest rate increase. As Loos warns, “renewed fuel-price inflation could potentially push headline CPI back above 5% by October, after reaching 5% in June and subsequently easing.”

The property implications are becoming clearer, with Loos expecting real household disposable income growth to slow during the second half of 2026. If this happens, the improvement in the debt-to-income ratio could stall, and the household debt-service ratio could start rising again, particularly for mortgage borrowers. The housing market is already displaying signs of slowing, with growth in new residential mortgage loans approved beginning to slow, and Loos expects a moderate increase in mortgage arrears.

Risks for residential property investors

For investors, this requires a change in strategy, shifting from chasing growth to emphasizing financial resilience. When acquiring residential investments, buyers should not base deals on the assumption that household finances will remain strong. The focus must be on affordability and financial resilience, rather than simply chasing growth.