Title: Property Prices Expected to Stagnate for Several Years, Experts Suggest Buying Now
Subtitle: A significant portion of households financially strained, according to surveys
Date: November 1, 2023
In recent months, property prices have slightly decreased, indicating a market experiencing several years of price stagnation, according to Michal Skoepy, an economist at Ceska Sporitelna. Skoepy compares the current situation in the real estate market to the crisis year of 2008 when the world was going through a recession. In 2008, property prices dropped by eight to nine percent compared to the peak in mid-2008. This trend is repeating itself now, with property prices remaining stagnant for the past four years. Skoepy explains that while property prices may stabilize, everything else, including wages, will continue to rise, making properties more affordable.
However, when factoring in inflation, property prices may experience a decline of up to twenty percent, warns Martin Novak from the consulting company Broker Consulting. Novak adds that now is a good time to buy property if it economically suits individuals, meaning they have sufficient income and have found a property that meets their needs.
Lower interest rates will also contribute to the affordability of housing. It remains to be seen by how much the rates will decrease, but lower rates will encourage people to take out mortgages. Novak states that the worst period in the real estate market, when it absorbed high interest rates, is behind us.
Financial Strain on Households:
According to Michal Straka from the IPSOS agency, households are relatively calm about the current economic situation. However, thirteen percent of households do not have any financial reserves, and three percent have higher expenses than income. This means that one-fifth of households are on the verge of their financial limits. Straka further explains that 33 percent of households have a small surplus, while 24 percent are able to save.
A survey conducted by Broker Consulting revealed that almost half (45 percent) of the surveyed households expect their financial situation to remain the same in the future.
Households have various strategies to cope with high expenses. Over the past year, 55 percent of them received higher salaries, mostly by ten percent. However, according to respondents, this increase is not sufficient. To maintain their comfort during times of high inflation, they would need to add an additional twenty to thirty percent, says Straka.
The survey also showed that monthly net income increased by thirty percent compared to 2019, but only ten percent of Czechs experienced this growth. Inflation during the same period was around 32 percent, meaning that the real incomes of approximately ninety percent of citizens have decreased, according to former Czech National Bank Governor Jiri Rusnok.
Concerns about Mortgage Refinancing:
Households are particularly worried about mortgage refinancing in the coming year. More than half of the respondents in the survey, which included thousands of people, fear higher repayments. If they encounter difficulties with repayment, the majority of them plan to reduce unnecessary expenses. Thirty percent of households will cancel some savings within their construction plans, while a quarter will seek additional or part-time employment. The same percentage will use their existing reserves. In the event of repayment problems, some households plan to cancel their savings for retirement. Twelve percent would consider selling their property and paying off the mortgage.
In conclusion, property prices are expected to stagnate for several years, making it a favorable time to buy property for
How do rising living costs and stagnant wages contribute to the financial strain on households?
Ins that the financial strain on households is mainly due to rising living costs, including housing, utilities, and food prices, combined with stagnant wages.
Surveys conducted by IPSOS indicate that a significant number of households are facing financial difficulties. Many are struggling to cover basic expenses and have little to no savings. These households are at high risk of being unable to afford necessary financial commitments, such as mortgage payments or rent increases.
Experts suggest that these challenging economic conditions will likely persist for several years, leading to stagnant property prices. However, they also emphasize that this presents an opportunity for those who are financially stable and have sufficient income to purchase property now. Lower interest rates further contribute to the affordability of housing and are expected to incentivize more people to consider buying property.
While property prices may stabilize or even decline in the coming years, it is essential for potential buyers to carefully evaluate their financial situation and choose a property that suits their needs. It is crucial to ensure that the economic and mortgage commitments are manageable, considering the potential risks and uncertainties in the market.
In summary, experts predict that property prices will remain stagnant for several years. The financial strain on households, combined with rising living costs and stagnant wages, contribute to this market condition. However, for those who can afford it, now may be an opportune time to buy property, aided by lower interest rates. Anyone considering purchasing property should thoroughly assess their financial situation and choose wisely to mitigate risks.
