HOUSE PRICES in Finland will start declining at the end of this year and decline next year for the first time since 2015, predicts the Mortgage Society of Finland.
Hypo on Friday stated in its most recent real estate market review that the market is facing considerable headwinds in the form of rising interest rates and consumer prices and the waning of the injection of energy given by the remote-work boom.
House prices, it predicted, will creep up by 1.5 per cent this year due to a strong start to the year but drop by 0.5 per cent next year.
The upbeat employment situation and the financial buffers built up by households are the main factors supporting the market from the effects of rising interest rates, eroding purchasing power and the scrapping of support mechanisms introduced due to the pandemic. The employment situation taking a turn for the worse could send house prices into rapid decline.
“If the economy slows into a deep recession and labour markets stagnate, it will be a frosty time for the house market,” said Juhana Brotherus, the chief economist at Hypo.
Real house prices, meanwhile, will decrease irrespective of the employment situation because inflation and pay rises are expected to outstrip the increase in rents and real estate prices in the coming years.
Hypo also forecast that house prices in the capital region will this year develop at a more sluggish pace than in other parts of the country for the first time since 2008, sliding by a bit over one per cent in the coming six months. The year-on-year development, though, will remain positive due to a strong start to the year in the region.
House prices in the region are to rise by one per cent in 2022 and half a per cent in 2023.
The number of real estate sales in the region decreased by 11 per cent year-on-year in the second quarter of the year. Prices, on the other hand, were roughly a per cent higher even though the prices of one-room houses fell by almost two per cent.
In addition to the downward trend in the prices of small houses, historically high residential construction and high interest rates are expected to keep prices in check in the capital region – the latter due to its relatively high impact on neighbourhoods where house prices and, consequently, mortgages are higher than average.
Also Tampere is forecast to see a slowdown in real estate prices even though the city registered its highest net-migration gain in quarter-of-a-century earlier this year, according to Hypo. Brotherus and Juho Keskinen, an economist at Hypo, highlighted that it is positive that the capital region is not the growth driver in Finland.
Sliding prices are not expected to become a trend in either Tampere or Turku. While the number of sales in the cities decreased in the spring by over nine and five per cent respectively, the prices rose by five per cent in Tampere and dropped marginally in Turku.
Brotherus predicted that winter will arrive ahead of time in the real estate market as rising interest rates put a strain on borrowers and rising consumer prices gnaw away at the purchasing power of consumers in Finland.
The remote-work boom that elevated prices surprisingly significantly is similarly petering out.
House prices in the capital region have surged by eight per cent and those in other parts of the country by six per cent during the pandemic. The prices of larger houses surged especially in and around growth centres as households of knowledge workers looked for more floor space for their remote-work setups.
“Remote work will surely remain a part of the daily lives of knowledge workers in cities, but not as dominant one as it was during the two exceptional years,” he said.
Aleksi Teivainen – HT
