OP forecasts fall in home prices in H1

Home prices to fall particularly in the first half of the year, expected to begin rising again next year, according to the market review of OP Financial Group published on Wednesday.

The end of the year was grim for the housing market, and OP Financial Group’s economists do not expect things to improve early this year.

For this reason, OP economists are lowering their price forecast for the Helsinki Metropolitan Area. Right now, the prices of both studios and large apartments are falling.

Although home prices have seen the sharpest fall since the financial crisis, the Finnish housing market is still very stable.

On average, home prices increased by 0.6% last year, mainly due to the strong rise early in the year. The decline in home prices accelerated towards the end of the year. In the second half of the year, home prices fell by 1.3% from the same time period the previous year. The sharpest drop was in the Helsinki Metropolitan Area, where prices of old housing company units fell by 2.3% in July–December.

In the latest housing market review, OP Financial Group economists estimate that home prices will continue to fall this year. The fastest drop will be in the early part of the year.

“The sharp rise in interest rates and costs of living has clearly slowed down the housing market, and no clear recovery is expected this winter. Still, we are starting to see the first signs that the slump in housing market activity is bottoming out. For example, the volumes of sold homes and forecasts about housing market trends have no longer declined,” said Joona Widgrén, Economist at OP.

Economists have reviewed the forecast given back in December on prices in the Helsinki Metropolitan Area. According to the new forecast, home prices will fall by 6% to 8% (previously 5% to 7%) in the Helsinki Metropolitan Area and by an average 3% to 5% in the rest of Finland. The average decline in prices nationwide will be around 4% to 6% this year.

However, home prices may begin to rise as soon as next year by about one per cent on average.

“We are expecting the decline in home prices to bottom out by the start of next year. Once the steepest hikes in interest rates are behind us, people will again resume activity in the housing market. In terms of sales volumes, the exceptionally high figures seen during the pandemic are unlikely to return, and volumes are expected to eventually settle to pre-pandemic levels. We expect home sales to pick up and for prices to eventually see a modest increase,” Widgrén added.

Last autumn, home prices declined particularly among small apartments, with the prices of studios clearly lagging behind larger homes. Towards the end of the year, the trend also began to affect family homes, as the prices of two-bedroom and larger homes took a downturn.

“The decline in the prices of studio apartments was likely due to both investors shying away as well as the high volume of new housing construction. Over the past few months, rising interest rates and living costs have also had an impact on the prices of family homes that people buy to live in,” said Widgrén.

The prices of detached houses have stopped rising both in the Helsinki Metropolitan Area and the rest of Finland. The prices of new housing units have also started to fall after reaching their peak. The number of unsold new housing units increased dramatically at the end of the year.

Home prices in Finland last saw this steep a decline 15 years ago during the financial crisis, and even then the decline proved short-lived. Although home prices are falling considerably at the moment, the Finnish housing market remains stable and the likelihood of a more serious crash is small.

“By most metrics, the housing market has been very stable, and there are no significant imbalances visible in the Finnish housing market. Based on this, I believe that the current fall in prices has more to do with buyers adjusting to higher interest rates than the start of a larger decline,” added Widgrén.