The recovery of the Russian economy in 2021 had one spillover effect, which can be assessed both positively and negatively. Since the beginning of the year, housing prices have grown at an unprecedented rate for many years, and throughout the country. In the third quarter, on an annualized basis, they added 14.6%, despite the historical volumes of housing introductions. In the new year, both construction and price increases will slow down, experts say, but there is no particular chance that it will lag behind inflation, even despite the sharp increase in mortgage rates. Details – in the material “Izvestia”.
In 2021, it was the mortgage that became the main driving force of the housing market. Budget-funded incentive and family programs have helped drastically lower rates. By the middle of the year, the average mortgage rate in the country was just over 7%. For comparison, in July 2019 it reached 10.3%. And this is if we leave out of brackets inflation, which has more than doubled over the past two years.
Photo: Izvestia / Konstantin Kokoshkin
At the same time, the volume of housing commissioning in the country has sharply increased. In 2020, about 82 million square meters were built. m of living space, which in itself is a good indicator, the third in history after 2014 and 2015. In 2021, this result will be guaranteed to be surpassed: by the end of November, 83 million sq. m, and by the end of the year the figure is likely to reach 95 million m, which will be by far the best result of all time.
Despite the rapid pace of housing commissioning (it is especially characteristic that the fantastic results were shown by individual construction – 56–58% of the commissioned living space accounted for by private houses), the demand due to mortgages turned out to be even stronger. As a result, prices grew much faster than inflation, especially for new buildings: in medium-sized cities with a population of 500 thousand to 1 million people, the growth, according to CIAN estimates, reached 38%, although in general, by the end of the third quarter, the growth rates were comparable to the rapid 2000s. This is a global trend – according to this indicator, Russia is not even in the top ten countries with the fastest growing housing prices. Not only the highest demand, but also the rise in production costs due to the increase in prices for materials and energy resources, as well as the cost of labor, played a role here.
As a result, housing has become even less affordable than before the crisis. In 2019, the average Russian could buy a small apartment for eight annual salaries, and in 2021 he would need from 9 to 11 annual incomes. It was the benefits that smoothed out this inaccessibility. Family mortgage programs were eventually extended despite lively debate. Preferential mortgage has also been preserved – however, the rate on it was raised to 7%.
Photo: RIA Novosti / Maxim Bogodvid
The rates will inevitably grow: according to the forecast of the head of DOM.RF Vitaly Mutko, next year they may return to the pre-crisis double-digit indicators – 10.2%. Banks one way or another are forced to focus on the key rate of the Central Bank, which amounted to 8.5% and is likely to rise further.
“The increase in the key rate of the Central Bank of the Russian Federation, the cycle of which is likely to continue in 2022, has a very significant effect on the market,” said Mark Goikhman, chief analyst at TeleTrade, to Izvestia. – It can rise to 9% to bring down the “heat” of inflation and inflationary expectations. But this process, along with the tightening of conditions for preferential housing loans with state participation, sharply raises mortgage rates in the literal and figurative sense. Average rates reached 9.58% by mid-December. In 2022, they may rise above 11%. Considering that more than half of home purchases are made with the use of mortgage loans, their rise in price will significantly reduce demand, especially at current real estate prices, which are already difficult for buyers to accept.
At first glance, this should significantly reduce the demand for housing, since it is difficult to borrow at such a rate.
Photo: RIA Novosti / Evgeny Biyatov
Nevertheless, analysts believe that a stop in housing prices should not be expected. At best, we can talk about a slowdown in this growth. The picture, however, will differ depending on the specific regions, considers the expert of “BCS World of Investments” Igor Galaktionov.
– Cheap mortgages were one of the key drivers of real estate prices in 2020-2021. The rise in the cost of housing loans allows us to expect a slowdown in price dynamics in 2022 or even a local decline in the most overheated regions. However, on a national scale, a decrease in prices is not expected, since the increased cost of construction and the continuing shortage of supply from developers will support quotations. On the bottom line, we can see the price plateau or a slight increase within inflation.
– At the current stage, even an increase in rates does not have a strong impact on price dynamics, since both the key and mortgage rates are still below the “dock” levels. – said Natalya Pyryeva, an analyst at Finam. – The rise in prices continues due to the still high level of demand, the rise in prices for building materials and labor amid a shortage of personnel. Previously, there was an assumption that some stabilization of prices will occur in early 2022, but consumer demand remains high, probably due to the continuing uncertainty about the economy, accelerating inflation, and the extension of all kinds of restrictions associated with the coronavirus.
According to her, demand in any case is cooling as the housing issues are satisfied, and due to the curtailment of preferential mortgages, and because of high prices. Nevertheless, given the circumstances with the rise in prices for building materials and labor, it is expected that during the first half of 2022 prices will remain at the achieved levels or slightly decrease, as demand is expected to decrease, as well as due to an increase in supply in the market. And in general in Russia, the growth in real estate prices during 2022 will be at the level of inflation, the interlocutor of Izvestia believes.
Photo: Izvestia / Alexander Kazakov
The drop in demand due to higher rates will be offset by weaker supply, agrees Mark Goykhman.
– Inflation leads to a noticeable increase in the costs of developers for materials, work, services, energy, equipment, etc. It also acts as a limitation of the level of profitability, below which the builder will not be able to lower prices. Thus, sandwiched on both sides – up and down – housing prices are likely to stagnate next year. It is possible that some subsidence of them by about 5%, an increase in the terms of sale, the formation of various manifestations of a hidden reduction in price – discounts, gifts, etc.
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