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A recent survey by Nordea Bank reveals that Finns hold realistic expectations about future interest rate developments and do not anticipate a return to zero interest rates. While the desire to buy homes remains stable, over a quarter of respondents are concerned about the current interest rate situation. Additionally, Nordea's housing market report predicts that the bottom of the housing price decline has been reached, but a full-scale recovery is still on the horizon.

Finns believe that interest rates have risen permanently. In Nordea's recent housing survey, 2,000 Finns were asked about their expectations for the 12-month Euribor rate five years from now. The general consensus is that interest rates will decrease slightly from their current levels but remain higher than the rates seen over the last decade.

The average response was 3.7%, with a median of 3.5%. Less than 15% of respondents believed that rates would be below 2% five years from now. The majority of responses fell within the 2-3% range. Financial markets are anticipating an interest rate of approximately 3.2% five years from now.

"Finns have realistic expectations regarding future interest rate developments, and there is no belief in a return to zero interest rates. However, we are still adjusting to this new interest rate environment, and our survey reveals that the current rate situation is a concern for over a quarter of those Finns who wish to buy a home," said Jussi Pajala, CEO of Nordea Mortgage Bank.

The high-interest rates have been a significant factor in the subdued performance of the housing market. Particularly, the weak demand for small apartments is slowing down the entire market, as those moving to larger homes take longer to sell their current properties. This phenomenon has led to an unusually widespread housing market slowdown with transaction chains.

According to the survey, the desire of Finns to purchase their own homes has not diminished over the course of this year. However, 43% of Finns now expect their financial situation to improve before they consider buying a home or moving to a new one. This represents a 6% increase since February.

"As interest rates stabilize, and household purchasing power improves due to rising wages and slowing inflation, balancing personal finances will become easier. This is likely to open up the housing market because the need for home ownership has not disappeared, and the current market offers many interesting opportunities," added Pajala.

The decline in housing prices observed in the housing market is coming to an end, according to Nordea's housing market report. However, the recovery in housing prices is expected to take place next year. While housing prices in the Helsinki metropolitan area are expected to continue declining for a while, other major cities such as Tampere, Turku, and Oulu have already seen a stabilization in price declines.

Factors such as rising interest rates, weakened consumer confidence, reduced purchasing power, and increased housing supply have contributed to the decline in prices over the past year. Prices have fallen across all types of housing, with studio apartments experiencing the most significant drops compared to their 2019 levels.

The factors that have pushed down housing prices are gradually diminishing. However, the expected worsening of the employment situation in the coming winter is likely to slow down housing demand and keep price growth moderate.

"We anticipate that interest rates will decrease next year, which will support the development of housing prices. We predict that housing prices will increase by approximately 1% nationwide next year if the expected interest rate decline occurs as planned, and the policy rate is around 3% at the end of next year," said Juho Kostiainen, an economist at Nordea.

HT

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