CESEE property market review : housing market trends in the first half of 2023

Housing markets in Central, Eastern and Southeastern Europe (CESEE) visibly cooled down in the first half of 2023. The nominal annual growth of house prices (GDP-weighted average) moderated to around 6% in the first and 4% in the second quarter of 2023, compared to full-year growth of more than 13% in 2022. If we look at the financing side, we see that housing loan growth also weakened in most CESEE countries in the first half of 2023. The reasons for this cooling appear to be more or less the same everywhere: Surging inflation came along with rising interest rates that made debt financing more difficult. Additionally, households face heightened (economic) uncertainty that may have caused them to reassess their plans to buy a house. Some households may have adopted a wait-and-see position, expecting house prices to moderate further. More favorable alternative investment options could also be a factor that has caused households to be more reluctant about buying a house at this stage. For the construction sector, weaker demand for housing appears to be one of the key concerns. The construction sector is also burdened by overall high costs of construction and accelerated growth of financing and refinancing costs. From a structural point of view, many CESEE countries face a considerable shortage of housing, particularly of adequate housing. Regarding financial stability risks, the debt service capacity of many households, particularly those with a variable rate housing loan, might be stretched given still elevated inflation in most CESEE countries and the prospect of higher loan installments.