Research Detail
| 2023/07/10 / Erste Group Research |
CEE Special Report | House price development: impact of recent shocks and outlook. The average annual growth of house prices over the last two years doubled compared to 2015-20, due to (post)pandemic reallocations. It slowed down in 2H22, and this continued in 1Q23 as interest rates on new mortgage loans at least doubled between December 2021 and 2022, cooling down the demand for housing loans and resulting in a visible decline in new business volumes in CEE. However, labor market conditions remain tight, as opposed to the development seen after the Global Financial Crisis, when house prices went through a relatively long stagnation period. Further, homeownership in the region is much higher compared to the EU and the number of dwellings per household remains low in the CEE, which correlates with a more dynamic growth of house prices. A decline in supply is likely to keep price pressure elevated. Finally, expectations for monetary easing and interest rates to go down should make loans for house purposes more available again. All in all, the decline of house prices should be rather short-lived, as opposed to the development seen after the Global Financial Crisis, due to rising expectations for monetary easing and tight labor market. House price growth correlates most strongly with labor market indicators. Low unemployment and wage growth support house price increases. Furthermore, labor market conditions remain tight as opposed to development seen after Global Financial Crisis, when house prices went through relatively long stagnation period. The lower the number of dwellings per households in 2015 was, the higher the cumulative nominal growth of house prices since then. Czechia and Hungary stand out in the region with the highest increase in house prices since 2015. Czechia also has the lowest number of dwellings per household in the region. Romania is on the other side of the spectrum, with the highest number of dwellings per household. The number of building permits (measured by million square meters of useful floor area) dropped in 2022 amid weakening demand. In CEE8, the total number of square meters of useful floor area is much lower (below 8mn square meters, right axis) compared to the euro area (roughly 140mn square meters, left axis), but the development follows the same pattern. Further, the costs of building materials have increased visibly due to after pandemic supply bottlenecks. Such a development is likely to limit the space for house price declines. In all CEE countries but Romania and Poland affordability of housing worsened. In Romanian and Poland, wages grew faster than house prices improving affordability of housing compared to 2015. Dynamic growth of nominal wage in 2023 should also bring some relief to the households which were burden deu to rising costs of credit. |
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General information
| Author | Erste Group Research |
| Date | 2023/07/10 |
| Language |  |
| Product name | CEE Economies Special Report |
| Topic in focus | FX, Macro/ Fixed income |
| Economy in focus | CEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia |
| Currency in focus | Croatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar |
| Sector in focus | - |
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