Housing market | Housing prices in Finland are exceptionally low – will falling interest rates turn prices up?

Housing market Alho has become very clear during the autumn.

CEO of the Central Association of Real Estate Brokers Tuomas Viljamaa estimated in September that the number of housing transactions could very well reach this year to just under 50,000 stores. Just as few housing sales were last made in 2003. Housing sales were more lively even during the financial crisis in 2008 and 2009.

Chief Economist of Suomen Yrittäjai Juhana Brotherus in turn found that September was the quietest month in the history of measuring mortgage withdrawals. The measurement history also starts from 2003.

The sluggishness of the housing market has also been reflected in housing prices, which have been falling since the summer. Currently, old shared apartments prices are cheaper in all major cities than at the beginning of the 2020s.

At the end of October, however, there was a small glimmer of light. A week ago on Monday, the 12-month Euribor rate fell below the six-month Euribor rate. One-year Euribor is the most common reference interest rate used in mortgages.

As long as the 12-month euribor anticipates the level of the European Central Bank’s (ECB) key interest rate one year from now, the movement can be considered as a sign of a possible decrease in interest rates next year. This, in turn, could bring home prices back up and eventually boost the housing market as well.

Helsingin Sanomat asked the opinion of two economists who follow the housing market.

Nordic an economist Juho Kostiainen according to housing prices have traditionally started to rise a year after interest rates have started to fall. On this basis, one could therefore predict that the prices of apartments will rise again next summer or next autumn at the latest.

“When housing prices last fell in the early 2000s and around the time of the 2008 financial crisis, the rise in prices started again about a year after the interest rate peak and the subsequent decline in interest rates.”

Of course, such a forecast assumes that the same pattern repeats itself in business cycle as in business cycle. Kostiainen points out that business cycles are not necessarily the same.

“It would be quite consistent for apartment prices to go up with the drop in interest rates, because the prices started to drop accordingly just when the interest rates started to rise.”

Along with the decrease in interest rates, the increase in demand can also increase housing prices. Although autumn has been a quiet time for both housing sales and mortgage withdrawals, the continuation of the interest rate drop may affect both before long.

Demand is starting to return to the housing market as people’s desire to borrow awakens. Of course, the rise in prices in this regard will ultimately be decided by how well the demand for apartments meets their supply.

For housing finance specialized credit institution economist Juho Keskinen considers it likely that the fall in housing prices will turn into an increase in the next year.

“At the end of this year, we may still see a drop in prices, because prices always react to market changes with a small delay. However, I believe that there will be an upward turn in prices in the middle of next year.”

Keskinen estimates that in addition to falling interest rates, prices are also affected by demand. He thinks the effect will come specifically through a weaker housing supply than before.

“When I look at the statistics of the construction industry, it seems that there are quite a lot of new projects still available next year. However, the longer the year goes on, the less the supply becomes. The lack of supply will therefore support an upward trend in prices.”

Like housing sales, housing construction has taken off quite a bit this year. For example, the number of building permits granted for housing construction fell to an all-time low in August.

At the beginning of September, the Chairman of the Board of Construction Industry (RT). Timo Vikström stated quite bluntly in an interview with Helsingin Sanomat that “next spring there will be no construction in this country”.

Here a question creeps into my mind. Is there a home buyer’s market now?

Apartment prices may well be at their lowest for a long time. Prices can touch the bottom either right now or very soon. If buying an apartment is viewed only from the point of view of financial benefit, especially in the capital region, making deals at the end of the year could portend profit in the future.

What do economists say?

“Of course, the first thing to answer is that no one really knows if prices will continue to fall and when the rise will start. In this sense, buying an apartment is comparable to buying a stock. You can never be completely sure whether the bottom has been reached,” says Nordean Kostiainen.

“But if we look at how much the prices have fallen in general, we haven’t seen such a big fall in housing prices in Finland since the recession of the 1990s. So the repair shop has been quite big. Against this background, it would seem that prices are unlikely to drop further in the rest of the year.”

Hypon Keskinen would not like to equate buying an apartment with playing on the stock market. He emphasizes that for the majority of home buyers, it is not about making an investment. It is above all about buying a home for yourself or your family.

“However, if the expected value development decides the purchase decision, then of course the purchase price is important. So I would say that yes, it is now a buyer’s market.”

“From the point of view of the value development of the apartment, what is decisive is the area in which the apartment is to be purchased. Housing prices in areas with loss of migration are unlikely to rise more in the future, while in areas with gains from migration, an increase is on the horizon.”