Housing prices and the level of inflation in the third quarter of 2022

Central Statistical Office announced recently the so-called quick estimate of the Consumer Price Index, which in September 2022 was quoted at 17.2%. Inflation at a similar level was recorded last time in February 1997. Therefore, it is the highest notation of inflation in the current century. What matters the most from the point of view of both mortgage and housing markets is that this increase exceeded analysts’ forecasts and it makes the following decisions on further increases in interest rates even more plausible. A year ago, in October 2021, the NBP reference rate was only 0.10%. After 11 consecutive monthly increases, it is 6.75% now, with a prospect of further growth. Increases in interest rates, as well as new requirements of the amended “Recommendation S” of the Polish Financial Supervision Authority, effective from 1st of July this year, obliging banks to include an extra 5% risk buffer for increases in interest rates (interestingly also in case of fixed-rate loans), contributed to significant, over 50% decrease in the creditworthiness of potential borrowers. As a result, in following quarters we have observed drastic drops in the number of newly granted housing loans. In second quarter of this year, compared to the number of loans granted in the same quarter of the previous year, 43.70% less mortgage loans were granted for an amount lower by 38.85%. This meant a clear deepening of the trend that emerged in the first quarter of 2022, which definitively will continue or even deepen in following quarters.

Additionally, dynamically growing costs of living, combined with the rising flats prices, resulted in very apparent decline in the price availability of flats. This is indicated by the Housing Accessibility Index listed by the AMRON Centre, the quotations of which in the second quarter of the year fell to 162 points, i.e. to the level comparable to the one recorded in 2014. Both these factors (decrease in loan availability and decrease in housing availability) contributed to a very clear reduction of turnover on the housing market. It is estimated that the number of apartment sales transactions has even dropped by half as compared to the number of transactions concluded a year ago. Despite such a significant reduction in demand on the housing market, preliminary AMRON Centre data for the third quarter of this year do not indicate significant flats prices drops in nominal terms in the largest Polish cities, as expected by some market observers. At present, however, we can talk about a very marked slowdown in their growth dynamics.

CHART 1. AVERAGE TRANSACTION PRICES OF 1 M2 OF APARTMENT IN SELECTED CITIES

source: AMRON

The biggest change recorded on the markets of the six largest Polish cities is a decrease by 3.34% in the average transaction price in Lodz. At the end of September, it amounted to PLN 6 464, which was PLN 223 less than in the previous quarter. Slightly lower declines, by 1.96% and 1.61%, respectively, were recorded in Cracow and Gdansk. On the other hand, the average prices in Warsaw and Wroclaw increased – by 0.94% and 2.20%, respectively (to PLN 11 355 and PLN 8 906), and the average price per square meter in Poznan remained basically unchanged (an increase by 0.03%, i.e. PLN 2.37 per square meter). In other voivodship capitals, drops in average prices by 3.39% in Bydgoszcz and by 2.84% in Katowice, were the largest recorded changes. These results should of course be treated as preliminary estimates.

TABLE 1. AVERAGE TRANSACTION PRICES OF 1 M2 OF APARTMENT AND THEIR CHANGES IN SELECTED POLISH CITIES IN Q3 2022 (PRELIMINARY ESTIMATES)

source: AMRON

Lack of continuation or a decisive breakthrough of the trend indicates that the housing market in a very dynamic environment is still looking for a new equilibrium point and observed changes result largely rather from changes in the structure of turnover than from absolute changes in housing prices. In context of rising inflation, however, it is worth noting that the dynamics of changes in average home prices in the largest Polish cities over the horizon of four quarters is clearly lower than the level of growth in the Consumer Price Index recorded by the Central Statistical Office. This naturally signifies a decline in home prices in real terms.

Jerzy Ptaszyński
Research and Market Service Director