The latest real estate market figures released by the European Housing Services group report stagnation in the Prague market and price declines in the Central Bohemia and South Moravia markets. As much as they may give hope that affordable housing prices can be expected, the opposite is true. This is nothing more than the last drop before a proper breather, which we are already counting in units of weeks. And with it, the end of hopes for bargain buying. That is, unless the bidders are smart about the situation. And this year, for the first time, market opportunities are somewhat on their side, thanks to us.
The stagnation of the Prague market is not surprising. After a slight breather in early July, when the CNB deactivated its relentless census in the form of the DSTI, some people who had already saved for a mortgage but failed to pass the net monthly income requirement decided to act. Four months later, the CBA’s Hypomonitor reports that the volume of mortgage closings rose 90% year-over-year in September. But that’s a ninety percent year-over-year increase from the moribund September of 2022, when the mortgage market was still a lot colder than it is on the streets of Prague this morning. Mortgage applicants are simply still scarce, and stagnant prices are matching that.
Lower rates and higher house prices may come sooner than households expect:
But that may soon change. Inflation slowed to 6.9% in September – more than the CNB expected. The CNB had anticipated a cut in the key interest rate in the first months of next year. It is now being said in the background that, given the unexpectedly rapid fall in inflation, the base rate could be cut later this year. As soon as that comes, banks will respond by cutting mortgage rates more intensively. Delayed demand will shoot up and bring with it the prices of quality Prague real estate. This was confirmed by Karin Kubelková, a member of the Bank Board, who said that property prices are now at their bottom and that the CNB expects a gradual rise in prices in the coming period. Along with this, the CNB also expects a rise in wages. By how much? According to the CNB, we can expect an 8% increase in wages next year, which will fuel further growth in property prices in Prague.
The pen is mightier than the sword, and often mightier than the market. The more the media talks about falling mortgage rates, the less owners will sell. They prefer to wait, it will encourage nervousness of those interested in owning their own home, more people will flock to the market… not to mention that every further price negotiation will not lead to a price decrease, but again to a possible increase. Right now we are in a situation where real prices in Prague have fallen by more than 20% in the last year and a half, adjusted for inflation. However, this will not last forever. There are at most 8-12 weeks left to buy a good quality property in Prague at a good price. They are missing the train.
The mortgage is dead, long live the mortgage:
Can you do without a mortgage? Hardly – mortgage is still the main tool for financing your own home. But it has one wickedness that is showing up now, during the investment window. You won’t wait it out. Those who can’t handle the high interest rate will buy a more expensive and lower-quality property in a year or two, perhaps with smaller repayments. The supply of freehold brick flats in Prague has fallen by over 16% in the last 12 months as more and more people have decided to bite the bullet on an expensive mortgage and buy while there are still more to choose from, or sellers have just pulled their offers off the market because they know that if they wait to sell, they will sell at a higher price. This is doubly true for the really good ones.
But the market is a living organism. The average Prague resident’s path to a mortgage today should not start at the bank, but much earlier. Why would I wait for a cheaper rate and pay for it with a more expensive price for a lower quality property, when I can almost lock in the price of the property and still be sure that it is really the best – both the price and the property itself? There are tools that allow you to defer the mortgage in this way until it is cheaper. And it’s a shame how little is known about them.
The Czechs are open to innovation – but there are boundaries across which the train still doesn’t run. They have no problem investing in bitcoin, which they may not quite understand, but when it comes to breaking bread, they become canned – the roof over their heads, the biggest investment of their lives, they still collect themselves from the real estate agent, even though they know he is not buying for the buyer, but for the seller. And they crown it by going straight to the bank for a mortgage, without having someone on their back who knows exactly how to talk to the bank to make it as accommodating as possible. Tens of thousands of Czechs are thus trampling on their luck by not taking advantage of the potential that a mortgage offers them, combined with services for which there is now room on the market.
Czechs need to learn to hedge with mortgages. There is no other way to good housing for “mortgagees”
In the Czech Republic, it has not been common so far for those interested in owning their own home to use the help of someone who can not only help them choose a really good apartment and negotiate a good price, but also secure favourable financing. There was no reason to hedge the prices of real estate that a person with an average income in their city could reach and to bridge the two percent interest rates. But that time is gone. It is hedging, that is, contractually fixing the price under today’s conditions with only a slight increase, even though the actual price will soon rise much faster and uncontrolled, that is the way to go now.
And that is why Ownest is here. Of course, he’s concerned about the safety of his clients and investors, so he’s not for everyone yet. But for those who are almost ready for a mortgage, hedging will help them buy precious extra time. And by the time they are renting their dream apartment from the investor who bought it for them, they won’t have to agonize over missing their chance to get the home they want, but will have the peace of mind to secure the funds and income to become owners in two years at the latest. They will buy the flat from the investor at a pre-agreed price, which includes the discount Ownest negotiated for them when buying the flat from the original owner.
It’s the calm before the storm. Dealing with the mortgage when this storm hits will work like an umbrella, with all its physical properties. On the other hand, underwriting the financing before it happens and hedging the price of a quality property to be below market is a lightning rod instead of an umbrella. Where do you weather the storm?
Author: Martin Machala, Co-Founder, Ownest
