OP forecasts faster fall of home price

Home prices will fall faster than previously anticipated this year and the rising interest rates decreased the regional differences in the housing market, according to housing market review by OP Financial Group.

OP economists have lowered their forecast on the development of home prices since the weak first part of the year, said OP in a press release on Friday.

The prices of owner apartments are now anticipated to decrease by 1.5 per cent on average, while in January, the forecast was that prices would decrease by 1 per cent.

Towards the end of the year, OP economists expect both the prices and sales volumes to slightly increase.

“Those waiting for an upturn in the housing market need to be patient. However, we still believe that a slight positive turn will already be seen at the end of this year. Decreasing interest rates are without doubt the most important driver for a turn in the price development, while the growth of households’ income also supports the change,” said Joona Widgrén, Senior Economist at OP Financial Group.

The end of last year was boosted by first-time home buyers who were active with home purchases before the end of the transfer tax exemption at the turn of the year. However, from January to March, the number of owner apartment sales decreased by 12.4 per cent from the first part of last year, which was itself a slow period.

The development of home prices has also been weak. During the first quarter, the prices of owner apartments fell by 5.1 per cent from the year before.

The decrease from the highest prices in the summer of 2022 is now already 10 per cent. In the Helsinki Metropolitan Area, the decrease has been even faster. The prices have fallen from the highest prices in the summer of 2022 by as much as 13 per cent.

“The sluggish situation in the housing market has continued early this year. The price development that turned out to be slightly weaker than anticipated is at least in part explained by the fact that expectations of interest rate reduction are now more moderate than at the end of last year,” Widgrén said.

There will be a clearer rise in both sales volumes and prices next year. Economists predict that the prices of owner apartments will increase by 2 per cent next year. However, reaching the previous top level will take several years.

In their recent housing market review, OP economists analysed how the development of interest rates has affected the regional divergence of the housing market.

The housing market in Finland has diverged strongly in this millennium, especially after the financial crisis, through to the Covid-19 crisis.

The regional divergence has been driven by population development, for example. The decreasing interest level seems to have a connection with the accelerating divergence as well.

“During the long decreasing trend in the interest rates, it was observed that differences in home prices grew rapidly. Now, with rising interest rates, a turn in this development has taken place, with prices decreasing fastest in larger cities,” Widgrén said.