HOUSE PRICES in Finland will decline next year at a rate not seen since 1995, forecasts the Mortgage Society of Finland (Hypo).
Hypo on Friday revealed that it expects house prices to decrease in all parts of Finland in 2023. The prices are forecast to decrease by three per cent in the capital region and two per cent in other parts of the country as reservations among consumers slow down house sales to pre-pandemic levels.
The slowdown is attributable especially to the up-tick in housing costs stemming from the sharp, inflation-driven increase in interest rates. Consumer prices have recently been soaring at the fastest rate since the 1980s, pushing interest rates to the levels of early 2009, according to Helsingin Sanomat.
Juho Keskinen, an economist at Hypo, stated to the newspaper that the change is significant in light of the performance of the house market in the past decade – especially the culmination witnessed during the coronavirus pandemic.
“The house market is currently experiencing a kind of apathy we have not seen since the financial crisis,” he wrote in the market review.
He added, however, that the drop in house prices is expected to be fairly short lived. The prices are forecast to return to an upward trajectory as soon as in 2024 as interest rates stop rising and construction activity slows down.
“We aren’t forecasting a collapse of the house market or the kind of gloom seen in the 1990s,” he assured to Helsingin Sanomat, reminding that a decline in prices is understandable after a period of sustained growth. “Prices increasing sharply is by no means desirable. It’s normal that there’s a decline after the market has been on the rise for more than 10 years.”
Although the prices are forecast to drop especially in the capital region, home owners and mortgage borrowers there need not worry about the value of their home as the capital region, as well as other population centres, is expected to continue growing. With the economic uncertainty simultaneously slowing down construction, house prices are set to increase in the longer term.
The upward longer-term trend is supported also by employment growth and reasonably high business confidence.
“The economic support provided by record-high employment has never been this critical for the house market,” told Keskinen.
The prices of one-room houses have already started to drop sharply, after surging during the period of no interest rates and boom in real estate investment. With the number of one-room houses under construction high, their prices could continue to fall at a faster rate than those of larger houses.
“Powerful increases often translate to powerful decreases, and the decrease in small house prices is a sign of a healthy and even welcome development. New houses are being built for people who live alone and students, whose threshold to buy their first home will drop as the prices cool down,” said Keskinen.
“The winter hibernation of investors is offering good opportunities to negotiate prices for people on the market for small houses.”
No house type is immune to the price drops, however.
The current situation is dragging down particularly the prices of large single-family homes heated with electricity as the much-reported surge in energy prices has prompted many to pay closer attention to running costs. While the sales of single-family homes decreased by around 20 per cent year-on-year in the spring, the worst is yet to come, believes Keskinen.
“The saleability of large electricity-hungry homes is eroding and the price developments are a concern, whereas energy-efficient pioneers stand out favourably.”
Aleksi Teivainen – HT