Home sales on rise despite looming interest rate hikes

Home prices in last year saw the largest jump in a decade but the monthly home sales figures were higher than the averages from previous years in every single month, according to financial group OP.

Strong growth in the housing market is set to continue in 2022, said OP in a press release on Wednesday, adding that though price rises are levelling out, high demand supports growth, especially in the most desirable areas.

Last year was a particularly active one for the housing market. The market was at its busiest during the first two quarters and cooled off slightly towards the end of the year.

Average home prices in Finland as a whole increased by 3.7 per cent. As before, large cities saw the largest surges in prices, but at the same time, price rises were more across the board than in years. Both the prices of housing company units and detached houses increased.

OP Financial Group’s economists predict home prices will increase this year by 2.5 per cent from last year.

Next year, price increases are estimated to slow down to pre-pandemic levels of 1.5 per cent. For example, the construction boom in recent years has begun to be reflected in prices.

“All in all, last year was excellent for the housing market. Prices rose at a record rate, but not too quickly to cause major imbalances. Still, the cooling off in home sales towards the end of the year was a welcome sight. The trend in the housing market continues to be positive, even as weaker periods may also be seen this year,” said Joona Widgrén, Economist at OP Financial Group.

Lately, the markets have become significantly more anxious about rising interest rates. The 12-month Euribor, the most commonly used reference rate in home loans, is expected to turn positive as early as this year or in 2023 at the latest.

“Rising interest rates can be quickly reflected in the day-to-day life of people with a mortgage, but the impacts will be particularly felt in the outlook for 2023. However, there are currently several economic uncertainties at play,” said Widgrén.

In addition to the latest housing market situation, OP Financial Group’s housing market review looks at vacant houses and apartments, in other words homes without a permanent resident. These include second homes and short-term rental apartments.

Based on the review, large cities and their surroundings have the fewest vacant homes relative to their size. A total of 11.4 per cent of Finland’s housing stock has no permanent resident. The figure is 9.7 per cent in cities, 13.9 per cent in semi-urban municipalities and 18.4 per cent in rural municipalities. There has been an upward trend in the number of vacant homes all throughout the 2000s, and the pandemic in 2020 did nothing to reverse this. The majority of vacant homes in Finland are in apartment buildings.

“Of course, vacant homes in the housing stock are important for the functioning of the housing market. Still, it appears that the share of vacant homes has risen more sharply in recent years. There are several causes for this, including the accumulation of wealth and short-term rentals. This phenomenon should be paid closer attention as it can affect the balance of the housing market,” says Widgrén.