The half-percentage point interest rate cut decided by the Czech National Bank (CNB) last week will not have an immediate significant impact on the recovery of the real estate market. Although some recovery in demand can be observed at the moment, it is more likely to be a continuation of the gradual stabilisation of the market. Most buyers will still prefer to wait for even lower mortgage rates, but this is not necessarily a good move. With higher interest in mortgages, prices of flats will also rise, which will still be in short supply due to low construction.
“Many people may think that there is no reason to rush and prefer to wait for mortgage conditions to improve. However, we have to take into account that once the conditions on mortgages are favourable, property prices will rise significantly. Therefore, it may be more profitable to buy a property now at a favourable price while taking out an expensive mortgage that will be refinanced in the future,” said Štěpán Křeček, economist at BH Securities and economic advisor to Prime Minister Petr Fiala (ODS).
In his opinion, lowering interest rates will help to move the real estate market in three ways. In addition to making mortgages more attractive, it will also reduce the appreciation of savings in savings accounts, which will be an incentive to invest elsewhere, for example in real estate. But at the same time, financing for new construction will also become cheaper.
According to Petr Dufek, an economist at Creditas Bank, a similar situation could arise as last summer, when some people preferred to buy a flat or house rather than wait for cheaper loans, even in times of high interest rates. The volume of new housing loans without refixations has exceeded CZK 10 billion per month.
“It may happen that those who wait for a long time will get a cheaper loan, but they may have a problem with choosing a property or with its possible increase in price. The problem this year may be the relatively limited supply of new flats, the construction of which has been stalled for almost two years,” Dufek said.
The CNB has so far lowered rates only slightly and their level is still relatively high, according to economist Martin Gürtler of Komerční banka. The situation will improve only during this year, he said. He expects the base repo rate to be around five per cent in the middle of this year and to fall to four per cent by the end of the year.
“Small signs of recovery in the property market are already visible. The pent-up demand for property may be quite strong, boosted by the high level of accumulated household savings. However, it is difficult to say which specific level of mortgage rates should trigger a more significant increase in demand. I would rather expect it to be a gradual process,” Gürtler said.
The CNB cut its base interest rate to 6.25 percent last Thursday. The current rate is at its lowest level since June 2022. The CNB started raising the interest rate gradually from June 2020, when the coronavirus pandemic caused an economic crisis in the world. In May of the same year, the interest rate was 0.25 percent.
Source: CTK
