Housing prospects for Czechs have improved. But for a little while and not for long

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The nearly two-year fast in the real estate market, which began with a significant increase in interest rates, negatively affected all links in the construction chain.

As demand declined, construction and development companies waited and lost business. Because of low interest, sellers had to wait longer for a buyer to accept the required price or accept a discount. The situation is also complicated for buyers due to expensive financing. High interest rates have discouraged many of them from buying real estate.

Despite many negative impacts, the nearly two-year ice age in the Czech real estate market also brought positive developments. Property availability has improved. This was shown by data from the Czech Banking Association (ČBA).

“In 2022, the Czech Republic was at the top in the international comparison of countries, and the growth of real estate prices in recent years has significantly outpaced the growth of household income. From this point of view, a small correction was brought last year,” says ČBA Chief Economist Jakub Seidler, adding that the gap is wide. , also said that the Czech Republic ranks first in terms of housing deprivation in international comparisons.

This is also shown by data from Realty Chechi and Golem Finance, according to which the availability of own homes has improved by more than two percent year-on-year since last December.

Prices of older apartments have fallen by an average of seven per cent over the past year.

However, from the point of view of the growth of real estate prices in the European Union, from a long-term perspective, the Czech Republic is one of the countries with the highest growth dynamics. Over the past ten years, domestic prices have risen 125 percent, while the EU average was 55 percent.

Conversely, from a wage perspective, the average gross monthly nominal wage increased by 6.3% in the last quarter of 2023. However, in reality, it fell due to inflation, according to data from the Czech Statistical Office (ČSÚ).

“Despite more than six percent growth in nominal wages in the recalculated number of employees, real wages fell by 1.2 percent in the fourth quarter of 2023, taking into account the effect of inflation. At the same time, this is already the ninth consecutive decline. In real terms, wages fell by 2.9 percent for the whole of 2023, because “Inflation reached 10.7 percent and nominal wage growth was 7.5 percent,” said Zhitka Erhardova, head of CZSO's Department of Labor Statistics.

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Average Salary in Czech Republic

Part of the Czech Republic Average gross monthly salary (CZK)
Prague 55 925
Central Bohemian region 46 535
South Moravian region 45 569
Pilsen area 44 231
Usti region 43 165
Hradec Kralove area 43 079
South Bohemian region 42 761
Highlands region 42 623
Slin region 42 318
Moravian-Silesian region 42 068
Liberec area 41 911
Olomouc region 41 880
Part of Partubis 41 802
Karlovy Vary Region 40 559

Note: Data for the fourth quarter of 2023

What is the annual income of an apartment?

In practice, based on a simplified calculation between the average family income and real estate prices in the regions of the Czech Republic, according to Petr Dufek, chief economist at Creditas, the average family would currently need about eight years of income to purchase sixty meters. Apartment houses.

“But she must not spend a penny on food, electricity or anything else. In Prague, more than nine annual revenues are required, in South Moravia exactly nine, in the Ústí region, on the other hand, only three,” he said.

According to him, the availability of owning houses in Karlovy Vary and Hradec Kralove region has greatly improved.

“It has also improved in Prague, where a ten-year family income is no longer required, but more than nine. There is no change in the Liberec region and Vysosina,” the economist told SZ Business.

Slight overestimation of prices

According to Czech National Bank data published in its latest report on financial stability, housing availability has improved slightly as prices fall and nominal incomes rise.

“In other words, middle-income households financing the purchase of real estate through credit may continue to be exposed to the risk of future defaults on average real estate prices, current interest rates, and the expected level of growth of the economy,” CNB explains in its report on financial stability.

More affordable housing? Little, or none

According to CPA Chief Economist Jakub Seidler, despite the expected rise in real estate prices, the situation will continue to improve this year. “At the same time, with the slower pace of real estate price increases, the mismatch between price growth and nominal household income may ease,” he concludes.

Petr Dufek, chief economist at Creditos, has a similar direction. “I expect nominal household incomes to grow faster than property prices this year, so housing affordability may actually increase quite a bit,” he said. “On the other hand, apartment prices have risen so much in the last ten years that this can only be a symbolic improvement in the situation.”

According to Michal Pich, operator of real estate servers, realcechy.cz and realitymorava.cz, the question of how much real estate prices will increase this year will play a very fundamental role in growth.

According to Milan Roček, director of Dataligence, a company that collects data on real estate prices in the Czech Republic, housing will become more expensive in the order of one percent this year.

Libor Ostatek, a mortgage expert at Broker Trust and Golem Finance, expects the price level to fall and return to growth in the second quarter of this year. “On the general price level, I would expect it to be relatively more moderate in the order of one percent, which is probably roughly one to two percent this year,” he said.

Using the example of a three million dollar mortgage, in the era of cheap home loans, for example at a 2.5 percent interest rate, the customer would pay about 1.3 million in repayments over 30 years. However, taking out the same mortgage with the current interest rate, which was 5.96 percent in January, the owner of the loan would pay more than $3.4 million in interest over 30 years, according to HypoIndex data.

How interest rates make mortgage loans more expensive

The difference in interest paid depends on the level of rates
loan amount CZK 3,000,000
Maturity Leave 30
Interest rate 2.50 % 5.96 %
Interest paid 1,267,305 CZK CZK 3,475,145
Source: Calculations by SZ Business

At the same time, with a sharp discount on mortgages, demand may increase, and on the contrary, real estate prices will start rising again, Michal Pich of real estate portals realcechy.cz and realitymorava.cz told SZ Byznys. “This year, we expect only modest changes in housing availability. If the announced reduction in mortgage interest rates takes place, the demand for own housing will likely increase, leading to higher prices.”

According to Libor Ostek, despite the expectation that prices will increase slightly, the availability of one's own housing will not begin to improve in any fundamental way. “Despite falling interest rates and rising incomes, households are burdened with more than half of household expenses. This is still a high proportion,” he countered.

In addition to the influence of household incomes, interest rates and real estate prices, according to economist Petr Dufek, increasing supply in the domestic market will help improve the availability of own homes in the long run.

“New and existing apartments will definitely help. Housing construction is still in the doldrums, and many secondary apartments are not coming on the market because sellers have high expectations in terms of prices,” said the Creditas economist.

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