Housing trade | The drop in interest rates will “significantly” speed up the housing market, says the broker

Real estate agents believe that the interest rate cut expected by the European Central Bank (ECB) on Thursday will stimulate Finns’ home buying intentions.

Some in the real estate industry believe that the interest rate drop will get home buyers moving, but the industry also considers that a pick-up in housing sales also requires a strengthening of weak consumer confidence.

The ECB is expected to announce the lowering of its key interest rate on Thursday afternoon. Economists widely estimate that the commercial banks’ overnight deposit rate will decrease by 0.25 percentage points from the current 4.00 percent.

CEO of the Swedish Real Estate Association (KVKL). Tuomas Viljamaa says that the ECB’s interest rate cut “is at least not harmful” to the housing market, even though expectations of the interest rate cut have already lowered the Euribor rates used as reference rates for mortgages.

“The interest rate cut lowers the size of the loan installment of mortgage borrowers on the interest rate review days and increases purchasing power. We expect that confidence in our own finances will thus improve and the intention to buy an apartment will increase,” says Viljamaa.

The most significant effect of the interest rate cut is considered to be the psychological effect on consumers that the interest rate can actually decrease.

“The real estate market is very much about emotions. Households have been waiting for the interest rate cycle to turn, and the drop in interest rates confirms that the interest rate curve is on a downward trend,” says Viljamaa.

Real estate world managing director Mika Laurikainen believes that the ECB’s interest rate cut will “significantly” stimulate housing sales.

“The interest rate drop speeds up purchase decisions and creates security that the interest rate will at least not rise,” says Laurikainen.

According to Laurikainen, a sign that the housing market is picking up is the increase in demand for investment housing loans. Housing investors are usually the first to react to interest rate changes.

“Home investors are the first to move. This helps the bottlenecks in the housing trade in growth centers, i.e. studios and two-bedroom apartments,” says Laurikainen.

The Bank of Finland (SP) reported last week that the demand for investment housing loans has picked up in the spring. In March–April, Finns took out new investment housing loans 14 percent more than a year ago. However, there were clearly fewer withdrawals than in 2021 and 2022.

Sp-Kodin managing director Jukka Rantanen instead says that the decision to lower the central bank interest rate alone will not stimulate housing sales.

“The housing trade will only be boosted by the strengthening of consumer confidence. Confidence is at rock bottom, and housing sales will not pick up until it is strengthened, even though the drop in interest rates affects consumer confidence as one element,” says Rantanen.

Finnish consumer confidence remained very weak in May, although the indicator picked up slightly from April. Intentions to buy an apartment within the next year also continued to decline, Statistics Finland said last week.

Rantanen also says that the drop in the central bank interest rate is a message to those considering buying a home that interest rates are trending downward.

“Consumer trust is a feeling. The drop in interest rates affects that and creates faith in the future, buying and changing apartments.”