Apartment prices dropped by more than one and a half percent in August compared to a year ago.
Several the rise in apartment prices that has been going on for years now seems to be history in Helsinki.
According to Statistics Finland’s preliminary data, the prices of old shared apartments turned down in August. Apartment prices in Helsinki fell by 1.6 percent from a year ago.
In the rest of the capital region, however, apartment prices still rose: 2.4 percent in Vantaa and 1.9 percent in the Espoo–Kauniainen area.
From July to August of this year, prices also fell in Espoo and Kauniainen, where the decrease was 1.8 percent.
The average square price in August was 5,520 euros in Helsinki, 4,176 euros in Espoo and Kauniainen and 3,212 euros in Vantaa.
Finland Chief economist of the mortgage association Juhana Brotherus expects a drop in prices.
“Consumer confidence is at rock bottom, interest rates are rising quickly and home purchase intentions are declining,” he reasons.
According to Brotherus, economic fluctuations are typically the first to be seen in Helsinki. It’s because the capital’s housing market has the most investors. Now housing investors have pulled the emergency brake.
“Buyers of their own home are more relaxed. When the economic outlook changes, you don’t immediately start putting your home up for sale. Investors are faster in their movements.”
Another factor affecting Helsinki’s weak price development is the rise in interest rates, which hits high-value areas the hardest, says Brotherus.
“If the loan is hundreds of thousands of euros, an interest rate increase of a couple of percent is a significant cost. If the loan amount is tens of tons, the cost of a couple of percent is not very big to bear.”
The third factor affecting price development is the number of new apartments. Brotherus reminds that until the middle of next year, a lot of new apartments will be completed in the capital region like on an assembly line, which will have a heavy impact on prices.
Apartments a long-term decrease in value can fuel an economic recession, because with it mortgage borrowers usually reduce their consumption, says Brotherus.
If the current price trend continues, some may have to sell their apartments at a loss. However, the mortgage debtor’s lifeline is a buffer that has been accumulated during the corona crisis when housing prices rose rapidly.
“The prices are allowed to drop rapidly, we are talking about ten percent, so that they would be at the same level as in 2019.”
Collaterals for mortgages taken by households are not affected by the fall in the value of homes. According to Brotherus, banks cannot demand more collateral or larger loan repayments from consumers because housing prices are falling.
There is such a possibility in housing association loans, but Brotherus considers the situation unlikely.
“In practice, this affects new developments, but the lending rate should be really high and the price drop several tens of percent.”
Brother estimates that the price decline that has started now will continue. The whole year will still not go into the red, unless something surprising happens at the end of the year. The price development in January-July was positive.
“I believe that the drop in prices will last for a year. Before we see a clear change for the better, we will be closer to 2024.”
On the other hand, the possibility of a deep recession and a drastic drop in prices is not completely ruled out, says Brotherus.
“The risks are now exceptionally high in the housing market throughout the country, including the capital region.”
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