OP forecasts 2% fall of home price this year

OP Financial Group’s economists estimate that home prices will rise next year by 2.8 per cent, but this year, prices fell by 2.0 per cent, said OP in a press release on Tuesday.

Residential construction is showing signs of a recovery, and construction permits are now being applied for larger apartment buildings than before.

OP Financial Group’s economists predict that the prices of apartments will increase by more than expected next year.

The forecast for next year’s price increase has been raised to 2.8 per cent from the previous expected rise of 2.0 per cent.

“The recovery of the housing markets has started slower than expected, and part of next year’s positive outlook is that the recovery is moving a little further. In the big picture, expectations have not changed. Housing markets will recover, but there is no sign of a rapid recovery,” said Joona Widgrén, Senior Economist of OP Financial Group.

For the current year, OP’s economists slightly lowered their forecast on the development of home prices after a more modest beginning of the year.

Owner apartment prices are expected to fall by 2.0 per cent in May instead of the expected 1.5 per cent drop.

“Home sales have risen from the low point, but sales volumes are still clearly below normal. For the rest of the year, expectations have not changed much, and we still expect the housing market to start picking up during the autumn and winter,” said Widgrén.

For the housing market, the important Euribor interest rates have fallen significantly during the end of summer, and the 12-month Euribor is already at the three-per cent level.

The development of real disposable income has also been strengthened as a result of rising wages and a cooling inflation.

“We are beginning to see conditions for a sustainable recovery of the housing markets thanks to falling interest rates, good income development and the improved economic situation. The weakening of the labour market somewhat dampens the mood, but the overall prospects for the recovery of the housing market are good,” Widgrén added.

In the most recent housing market review, OP’s economists reviewed the situation of the construction industry. Residential building construction investments fell by 35.7 per cent from 2022 levels and have plunged to the same level as 15 years ago.

“Construction and especially residential building construction are clearly the weakest links of Finland’s economy. Without the negative impacts of construction, Finland’s economy would have continued to grow and develop at the same pace as the euro zone. The collapse of construction has played a significant role in the weakness of the economy,” said Widgrén.