Apartment prices are starting to fall around the world. Will they join Prague and Brno?
London, Sydney, Stockholm, Seattle and the nearby US-Canada border. These areas are among the hottest real estate markets in the world. But the situation is starting to change, and houses and apartments have already begun to decline in many of them. Not even ten percent. What is the situation in Prague and other Czech cities?
Since the last crisis in 2008, real estate prices have risen by hundreds of percent in most developed markets. Part of the increase was due to large investment funds, but a large role was played by households, which received low interest rates and could afford to buy more and more expensive real estate. This phenomenon was fundamentally manifested in the growth of prices in the most desirable cities, such as London, Syndeny, Stockholm, Seattle and in the Czech Republic, especially in Prague and Brno.
However, the situation has changed fundamentally in recent months and interest rates are leading to a sharp increase in the cooling of the real estate market, Bloomberg reports.
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“Markets such as Australia and Canada are already experiencing a drop in real estate prices in the order of tens of percent,” writes Bloomberg.
Past called floating interest rate
There are a number of reasons, but the main ones are people’s ability to take out loans or repay existing obligations stemming from mortgages.
Unlike the Czech Republic, floating mortgage interest rates are common in many countries. This means that the client does not have a fixed interest rate for several years ahead, but of course it depends on the base rates of the local central bank.
![Ondřej Boháč, head of IPR](https://www.newstream.cz/uploads/article/320x225_exact/profimedia-0658788095.jpg)
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“The most vulnerable markets from this point of view are Australia, Spain and Great Britain. In Australia, the share of mortgages with a floating rate in 2020 was 93 percent of negotiated loans, in Spain it was 52 percent and in the United Kingdom 42 percent,” reports the rating agency Fitch.
People who bought during the pandemic at favorable interest rates may have a major problem with repayment. Interest rates everywhere in the world have since risen from near zero by several percentage points, which can result in a multiple increase in monthly payments.
Energy prices are a game changer
And banks and local real estate markets still have to count on an influx of additional clients whose leases will expire in the coming two years. Their repayments will also increase substantially and they are at risk of being unable to repay.
![Electric energy, illustration photo](https://www.newstream.cz/uploads/article/320x225_exact/eonrbmfiEle-pexels.jpg)
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At the same time, the biggest problems may be in Europe, where a sharp increase in energy prices can be added to the increase in mortgage payments.
Here, too, demand cools down and prices fall. For example, Sweden has long been one of the hottest real estate markets. However, according to Bloomberg data, prices have already fallen here too, specifically by eight percent since this spring.
“Most economists expect that this year’s fall in real estate prices will reach 15 percent,” added the agency.
A decline may also occur in the Czech Republic
In the last thirty years, the Czech real estate market has experienced the only significant drop in prices, after 2008. It has been growing continuously since then, and economists still believe that it will continue to grow. At least in nominal terms.
However, according to the chief economist of BH Securities and adviser to Prime Minister Petr Fiala, Štěpán Křeček, there may also be at least a slight drop in real estate prices.
“A more significant drop in real estate prices can only be expected if mortgage repayment problems become a mass phenomenon. However, this is not likely to happen. People usually deny themselves everything else, and selling real estate often becomes the very last option. It is therefore possible that the price correction on the real estate market will only be moderate and in the future it will be very difficult for us to find a property at a good price,” he revealed in an interview for newstream.cz.
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![Ondřej Boháč, head of IPR](https://www.newstream.cz/uploads/article/320x225_exact/profimedia-0658788095.jpg)
Ondřej Boháč in the Realitní Club podcast: The Czechia is like a Hobbit in the middle of Europe. We live here at our own pace
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