OP Financial Group’s economists estimate home prices to decrease by more than what was previously estimated, especially in the Helsinki Metropolitan Area.
The economists currently estimate home prices to decrease by 5–7 per cent across the country during this year as opposed to the previous year’s estimate of a 4–6 per cent decrease, said OP in a press release on Friday.
Home prices in the Helsinki Metropolitan Area are now estimated to decrease by 6–8 per cent this year.
The rapid increase in interest rates has weakened the ability of people living in large cities to buy a home, especially those living in Helsinki.
Housing purchasing ability has collapsed to its lowest point in the 21st century.
The start of the year has not seen any changes in the housing market. Both sales volume and home prices developed poorly.
OP’s economists do not foresee any swift change to the situation and estimate in their new housing market report that home prices will decrease by more than what was estimated at the end of last year.
“There will be a delay before some of the effects of rising interest rates will be reflected in the housing market. Economic pull will continue to weaken this year, which worsens the outlook for the housing market. It is our estimate that we have reached the bottom concerning home sale volumes for now, but it will take longer for the markets to truly recover,” said Joona Widgrén, Economist of OP Financial Group.
Home prices started decreasing in the latter half of the previous year, with prices continuing to fall after the turn of the year.
Home prices fell by about 5.5 per cent between January and February year-on-year. Amongst large cities, the price decrease is the largest in Helsinki, where prices fell by nearly 7 per cent on average between January and February.
Home prices will start rising next year, but OP Financial Group’s economists predict the increase to be very small.
Home sales volumes will, however, slowly return to typical annual levels, i.e. the level of the years preceding the coronavirus pandemic.
“When the rise in interest rates levels off and energy prices start to fall, the uncertainty regarding rising living expenses will start to diminish. This supports the housing market and is thus reflected in the sales volumes. Economic pull should improve by a great deal for the housing market to recover properly. For this reason, we believe that the housing market will recover only slightly next year," the economist said.
The rise in interest rates has clearly weakened the ability of a typical Finnish household to purchase a medium-sized apartment and housing purchasing ability is at its lowest in the 21st century so far.
The increase of other living expenses and the general increase in prices have also weakened purchasing ability.
A median income household living in Helsinki, Tampere, or Turku has to spend more than a third of their income on living expenses. In other large cities, living expenses comprise less than a third of living expenses.
“While falling home prices may slightly improve purchasing ability, the decrease of prices has not been able to compensate for the weakening of purchasing ability caused by rising interest rates and expenses,” said Widgrén.
The situation is clearly the most difficult in Helsinki, where the housing affordability index result is below 70. This means that the income of median households in Helsinki should be more than 30 per cent higher than at present to prevent living expenses for a 55 square metre apartment from being more than a third of the household’s available income.
In addition to Helsinki, the housing affordability index is below one hundred in Tampere and Turku as well. This means that household incomes should be higher than at present to prevent living expenses from taking up more than a third of available income.
Housing purchasing ability has weakened in other large Finnish cities as well, but they are still at a moderately positive level. The best index result is in Lahti and the second best in Oulu. Large regional differences are explained by the different pricing levels for homes as well as the available income for households.
For example, homes in Espoo are comparatively expensive, but the median income is also higher, thus improving the housing affordability index of Espoo.
“Housing purchasing ability has decreased everywhere but the impact of rising interest rates has been most pronounced where the prices are the highest. Then again, home prices in Helsinki have decreased more than in other cities, which has softened the decline. Home prices in Finland differ regionally more than household incomes, which means that housing purchasing ability is at its lowest in the most expensive areas,” said Widgrén.
- Home prices
- Decreases
Source: www.dailyfinland.fi
