“The period of dynamic growth in home prices is coming to an end, and a correction is possible within the next year”, forecast bank PKO BP analysts in their report “Housing Market 2Q22”. In their base-case scenario, they expect prices to fall by up to 5% between Q2 2022 and Q1 2023.
There are at least several reasons why PKO BP expects housing prices to fall. Analysts note a strong decline in credit demand amid significant interest rate hikes and a significant drop in household creditworthiness following the implementation of recent banking supervision recommendations. These two reasons will translate very strongly into a decline in demand from potential buyers. In addition, developers are slow to respond to the weakening demand – the number of projects under construction is still high.
The last reason is the assumed further increase in interest rates up to 7% and maintaining such a level for a longer period of time. This will further reduce the number of people who can afford to take out a loan, and thus further weaken demand.
However, PKO BP analysts point to the high unpredictability of the environment and do not exclude the scenario of maintaining the upward trend in home prices. This would be the case, above all, if the interest rate hike cycle ends sooner than expected and the Monetary Policy Council quickly moves to cut rates. The MPC could be induced to do so by forecasts of a decline in the economic growth rate.
The sustained residential price dynamics may also be affected by the further increase of inflation, which translates into high construction costs related to the growing prices of construction materials and salary pressure. On top of that, developers may want to pass on to customers the costs of the Developer Guarantee Fund system launched on 1 July 2022.
In addition, over the next year, decisions currently taken by developers to put new projects on hold will result in a reduction in new supply. If prices do fall, they will then be held back by the reduced supply. “Especially if the forecasts of economic growth re-acceleration from mid-2023 come true”, emphasize PKO BP analysts.
Arkadiusz Słomczyński order