A quarterly gauge of Czech house prices rose 26% in the December from the previous year, according to London-based data analysis company CEIC Data. The difference between an average citizen’s income and real estate prices in the country is now one of the widest in the European Union, raising serious bubble fears.
To tame inflation that reached 16% in May, the Czech central bank has been on a monetary tightening campaign that lifted interest rates to the highest level since 1999, before another meeting this week.
“You would expect these rates to cool demand but, with inflation rates that much higher, it’s not working,” said Hradil, who added that people in the country see housing as an inflation hedge and prefer investing in real estate rather than stocks.
In Prague, video-effects producer Meera Sankar gave up on buying a home. Initially aiming to find a one-bedroom apartment in the city center for 3 million koruna ($130,000), the Ireland native eventually doubled her budget, but still couldn’t find an apartment that met her criteria. What she found either needed complete renovation or was in a remote or relatively unsafe area.
“For this kind of money you can get a huge four-bedroom house near Cork, Ireland, or a 150-square-meter apartment in my dad’s hometown in India,” she said. “It just doesn’t add up.”
The Czech Republic ranks second on Bloomberg Economics’ bubble measure, followed by its regional neighbor, Hungary. There, Prime Minister Viktor Orban has pushed homeownership incentives in a bid to boost fertility rates.
Prices in the country increased almost 20% in the last three months of 2021, compared with the same period a year earlier, according to the European Union’s data agency Eurostat. The situation has only been exacerbated by the war in Ukraine, which has pushed up energy costs and limited construction-worker availability. Last week, the central bank unexpectedly raised the key interest rate by 50 basis points. — Alice Kantor
UK
The UK housing market is starting to slow after two years of historic growth. As part of pandemic measures, homebuyers were exempt from a stamp tax duty on properties valued at up to £500,000 ($614,000) between July 2020 and June of last year, sending prices escalating even further and making housing “seemingly detached from the rest of the economy,” said Tom Bill, head of UK residential research at Knight Frank.
Now, the Bank of England has increased rates five times in recent months, with more hikes expected to come. That may portend a cooldown in real estate for the rest of the year, with more supply becoming available as homeowners rush to beat declines in values, Bill said.
Housing Boom | House prices hit a new record but the market is showing signs of cooling
Already, approvals for new home loans have dropped to the lowest in almost two years. Buyer inquiries fell in May after gaining for eight straight months, according to a survey from the Royal Institution of Chartered Surveyors.