Housing market | Hypo: Housing prices will start an exceptional decline, the last such sharp decline was in 1995

Apartments an extraordinary turnaround in prices is on the horizon.

Next year, housing prices will fall more than once since 1995, mortgage lender Hypo estimates in its review published on Friday. The drop in prices applies to the capital region as well as the rest of Finland.

“The change from before is quite strong, if you look at how prices have developed over the past decade. The appeal of the housing market has been strong, and especially strong during the Corona period,” says an economist at mortgage lender Hypo Juho Keskinen.

Helsinki in the region, Hypo predicts that apartment prices will fall by three percent next year. There will be a two percent decrease in the entire country.

This is a significant change, as prices in Finland’s growth centers rose throughout the 2010s. According to Hypo, people are now cautious and the housing trade has slowed down to the level before the corona crisis.

“The housing market is now experiencing a downturn, the likes of which has not been seen since the financial crisis,” Keskinen writes in Hypo’s review.

To the prices the increase in costs is particularly affected, which is the background of the rapid rise in interest rates due to the acceleration of inflation. Inflation is galloping at its strongest since the 1980s, and interest rates have already risen to the level of early 2009.

Central points out that the drop in prices is expected to be a relatively short-lived phenomenon. In 2024, prices may go up again, because the rise in interest rates is no longer expected to continue and construction will slow down.

“We are not predicting a collapse of the housing market or a similar downturn like we saw in the 1990s,” says Keskinen.

After a long continuous rise, the decline is also understandable, says Keskinen.

“It is by no means desirable that prices would rise sharply. It is normal that after a market that has been on the rise for more than 10 years, there will be a decline.”

from Helsinki those who buy an apartment are used to thinking that in the capital, if anywhere, apartment prices will at least not fall. Now Hypo predicts that prices in the capital region will fall faster than in the rest of the country. According to Keskinen, even in Helsinki, it is not advisable for a mortgage debtor to immediately throw the ax into the well when thinking about the value of his own apartment.

“It’s good to keep a cool head if we look a little further. We predict a drop in prices for next year, which is different from what the longer-term population forecasts say,” says Keskinen.

In Helsinki and other growth centers, the population is expected to continue to grow. Now it seems that construction will slow down due to the economic situation. When the continued population growth and the decrease in construction are added together, it means an increase in housing prices in the longer term.

At the same time, business confidence is still reasonable and the employment situation has improved. If there are no big surprises in the general economic situation and Finland avoids a long-lasting recession, prices will start to rise again, according to Hypo.

“The economic support brought by record-high employment has probably never been as critical for the housing market,” Keskinen estimates.

Housing market keeping quiet is not a bad thing for everyone. For example, first-time home buyers can get an apartment at good prices.

“First-time home buyers who are new to the housing market win, while those who have already bought their home at the peak of the price are the relative losers of the situation,” Keskinen writes.

The housing investment boom during the period of zero interest rates has increased the prices of small apartments in particular, which have already begun to fall more sharply compared to triangles and larger apartments. At the moment, there are still a lot of studios being built, which can drag prices down more than the general level. Especially in the Helsinki region, the prices of studio apartments still have room to fall, Keskinen estimates.

“Stronger increases often also know stronger decreases, and the decrease in the prices of small apartments is a sign of a healthy and desirable development. New apartments are being built for people living alone and students, so the threshold for buying a first home will lower as prices fall.”

If, now that interest rates are rising, investors give up their properties or are not as eager to acquire new properties, those looking for small apartments can get a cheaper apartment.

“Investors’ winter hibernation now offers good price negotiation opportunities for those looking for small homes.”

Any the housing type is not immune to falling prices, says Keskinen. The current situation has a particularly strong effect on the prices of large single-family houses that are heated with electricity. The sharp rise in energy prices has caused Finns to pay even more attention to the running costs of a new home.

The sale of single-family houses already declined in the spring by about a fifth from a year ago. According to Keskinen, the worst price freezes are yet to come.

“The saleability of large electric stoves is falling and the price trend is worrying, while energy-efficient pioneers are now particularly advantageous in the housing market,” Keskinen writes in the review.

According to Keskinen, the surprising thing about the market situation is that the loan margins offered by banks to both home buyers and building societies are at their lowest since 2008. The mortgage interest rate consists of the reference rate and the bank’s margin. According to Keskinen, the demand for interest hedging has also decreased.

“In addition to the withdrawal of investors, the development can be explained by the emphasis on lending to lower risk areas and the fierce competition between banks that protects consumers’ wallets. If you’ve gotten a loan, you’ve gotten it surprisingly cheap now.”