The slowdown may be due to the increase in the countercyclical capital buffer, which will take effect in October, and will potentially slow credit growth. In April, the rate of growth of housing loans on an annual basis recorded a slowdown for the first time since February 2021, decreasing slightly to 18.1% from 18.3% in March.
Next in terms of share (29%) is the opinion that prices will continue to rise at an accelerated pace due to factors favorable in this direction, both on the demand side and on the supply side. The dynamics of indicators affecting prices rather supports such an expectation.
On the demand side, households seek to maintain the value of their incomes after the rate of inflation catches up with the nominal rate of increase in average wages in the first quarter of 2022, kand real income growth can be expected to move into negative territory by the end of the year. At this stage, there are still no signs of a more noticeable change in interest rates for both deposits and housing loans, which would change the attitudes of households regarding options for investing savings, the analysis points out.
The housing market strengthened its upward trend in 2021, and house prices accelerated their growth rate. Rising international commodity and food prices in the second half of the year, as well as ongoing supply chain issues, fed through to consumer prices and added new dimensions to the drivers of real estate price growth.
On the demand side, negative real interest rates on deposits and already negative interest rates on housing loans further stimulated housing demand in order to preserve the value of savings and income. On the supply side, the prices of construction materials rose significantly and led to an increase in cost, which was reflected in the prices of new homes. The action of all the factors described above intensified in 2022 after the beginning of the conflict in Ukraine. In this edition, we asked financial intermediaries what housing price dynamics they expect until the end of this year.
On the supply side, Bulgaria is in first place in the EU in terms of the annual increase in the price index of a producer of residential buildings (Eurostat’s Construction Cost Index) in the second half of 2021 and the first quarter of this year.
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At the same time, material prices and shortages are increasing in importance as obstacles to development in the latest editions of the construction business observations. Among the remaining responses, 14% of participants believe that house prices will remain at their levels from 2021, and 10% are of the opinion that prices will begin to decline. An alternative answer is that prices will continue to rise at their previous year’s rate due to a combination of supply and demand factors.
A boom in property prices and sales in our country
Regarding interest rates, the respondents expect a slight increase in interest rates on loans in the second quarter, and similarly to deposits, they believe that it will be more pronounced for loans in US dollars. In the first quarter, the average cost of loans increased minimally compared to the last quarter of the previous year. In April, there was a decrease compared to the average values for the first quarter.
Despite the Fed’s first rate hike, the ECB made no change in monetary policy in the second quarter. In this sense, if the expectation of the survey participants is realized, it will probably be a reflection of increased uncertainty given the geopolitical situation and the acceleration of inflation.
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The forecasts of financial intermediaries for the dynamics of interest rates on deposits increase in this edition and point to the maintenance of their levels for deposits in leva and euros and a slight increase in those in US dollars. The expected slight decrease in the first quarter was realized for deposits in BGN and EUR, while the return on deposits in US dollars increased. In April, this trend continued for BGN deposits, but the interest rates on those in Euros and Dollars increased.
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