Prices into the unknown: What’s next for the real estate market?

Many are asking themselves whether they should wait to buy a flat or build a house in view of rising interest rates and stricter credit rules. Three scenarios for the future of the market

Rising interest rates, stricter lending rules, high prices – a turning point is looming on the residential property market. Prices have already slowed down in the third quarter, and now house hunters and home builders are asking themselves what will happen next. Three scenarios for the future of the market.

1. prices continue to rise

Interest rate turnaround or not, in terms of prices “the sky is the limit”: this is a scenario that is not entirely out of the question. After all, times are more uncertain than ever, which has always been an advantage for concrete gold. This was also seen in the Corona pandemic, says economist Michael Klien of Wifo: “Due to high inflation and uncertainty, real estate is still a valuable investment.” Klien therefore believes it is not entirely out of the question that there will be a “slight upward” trend in prices again in 2023.

Others also have something to gain from the theory. “In the long term, property prices will continue to rise,” Remax Austria boss Bernhard Reikersdorfer also thinks. The price is determined by supply and demand – and here, according to experts on both sides, a lot is happening right now.

The supply at Remax has “increased significantly” in the past four months, says Reikersdorfer – but this is also due to the fact that the marketing period has lengthened considerably, so the properties stay longer in the database. “For some properties there will only be two or three interested parties,” so price increases like in the past two years will no longer be seen, Reikersdorfer is sure.

On the other hand, there are more and more reports that potential sellers are now waiting because in uncertain times no one will part with a property if they don’t have to, or because they are hoping for an early continuation of the upward trend, which has been going on in Austria for 18 years now.

Another indication of rising prices: Building prices are still high and will rise again with the increase in personnel costs at the turn of the year, as housing researcher Wolfgang Amann points out. And building plots are not likely to get any cheaper either, because the pressure on politicians to put a stop to building and urban sprawl in Austria will increase even more.

2. prices rattle into the cellar

It happened in countries like Ireland or Spain in the 2000s: There, after years of speculation, real estate bubbles burst and prices plummeted. In this country, however, such a development is rather unlikely, because no one wants to recognise a bubble in the real estate market. Real estate debt currently accounts for 33 per cent of GDP, which is below the level of Germany and the Eurozone, argues Matthias Reith of Raiffeisen Research, and the unemployment rate does not point to any looming clouds.

The fact that there are currently hardly any distress sales by borrowers who can no longer repay their instalments also argues against scenario number two. However, such a “forced expansion of supply” would be necessary for significant price corrections. Michael Klien emphasises that such emergency sales are only a last resort and that all other expenditures are cut back beforehand. Interest rate developments also play a role here. With a time lag, some people could still stumble.

According to the Austrian National Bank, slightly more than five percent of households are considered to be vulnerable, i.e. financially easily hurt. These households have more consumer loans than home loans. But an interest rate increase of only one per cent, together with inflation of ten per cent, raises the share of vulnerable households to over six per cent. The current interest rate hikes are therefore hitting many of them, not to mention the high energy costs. The share of variable-rate loans in Austria is 47 percent and thus much higher than in the euro area with just under 20 percent. These loans are fully affected by the interest rate increases.

But at least for the time being, there are no signs that problems are brewing here. “And if there is no marked crisis, not many people will sell their properties now at an inopportune time,” says Klien.

3. Prices stagnate

For most of the experts interviewed, the most likely scenario is that prices will stagnate or even fall slightly in some parts of the country. This is already being heard from estate agents. Michael Klien of Wifo compares the current situation with the 1990s. At that time there was massive speculation due to a planned world exhibition in Vienna – and afterwards a downturn in the market nationwide.

For five to six years there had been stagnating prices throughout the country and in some cases even slight declines; at that time even land prices had fallen slightly. From 2002 and 2003 onwards, prices rose again.

The developer Immobilienrendite AG also assumes that prices will no longer rise strongly. In the last few months “far too high prices” had been demanded, now it is possible that “more realistic prices will be demanded”, i.e. the offer prices will fall.

An important factor in the current market situation is lending, as stricter lending criteria have been in effect since August. This became necessary because real estate in Austria was far too often granted with only little equity. Borrower-related measures had therefore become necessary and were also adapted in many countries in the EU.

However, the affordability of real estate continues to suffer as a result. According to the National Bank, compensating this affordability with over-indebtedness cannot be the goal. This would entail the risk of over-indebtedness of households, increase the risk for banks through loan defaults, and would also be bad for the economy because hardly any free capital would remain for consumer spending.

What is clear is that for 2022, the price increase will once again be in double digits due to a strong first half-year with a plus of around eleven percent, according to the figures from Raiffeisen Research. Experts agree that it could be the last year with a double-digit increase for some time.

Source: Standard.at, 23.11.2022

About Mosam Real Estate

Mosam Real Estate was founded in 2017 and is headquartered in Vienna. The owner-managed company sees itself as a comprehensive real estate service provider and residential developer. The focus is on the high-quality marketing of residential and commercial properties throughout Austria, as well as the renovation and construction of residential buildings, taking into account the current possibilities of sustainable and climate-friendly building materials and construction methods.

For further information, please visit www.mosam-realestate.com