Residential housing prices in Finland this year will decline more than anticipated at the end of last year, particularly in the Greater Helsinki area.
This is according to a housing market report issued on Friday by OP Financial Group.
OP said that consumers' housing purchasing ability "has collapsed to its lowest point in the 21st century."
The financial group noted that there were no visible changes to the housing market during the beginning of this year, saying that both sales volumes and prices of homes "developed poorly."
However, now the bank's economists have forecast that home prices will decrease by five to seven percent rather than the four to six percent estimate they suggested at the end of last year.
Home prices will see a steeper decline in the Helsinki Metropolitan Area than in the rest of the country. They are expected to decrease by six to eight percent this year, according to OP.
The effects of recent interest rate hikes will take a while before they are reflected in the housing market, according to OP economist Joona Widgrén.
"Economic pull will continue to weaken this year, which worsens the outlook for the housing market. It is our estimate that we have reached the bottom concerning home sale volumes for now, but it will take longer for the markets to truly recover," Widgrén said in a press release on the housing market report.
Prices rising slightly next year
There may be some light at the end of the tunnel with home prices rising again in 2024, but those increases will likely be very small, according to OP's economists.
"When the rise in interest rates levels off and energy prices start to fall, the uncertainty regarding rising living expenses will start to diminish. This supports the housing market and is thus reflected in the sales volumes. Economic pull should improve by a great deal for the housing market to recover properly. For this reason, we believe that the housing market will recover only slightly next year," Widgrén said.
OP's housing market report included a purchase index for Finland as a whole and its nine biggest cities.
"The calculation is based on the assumption that 85 percent of the purchase price for a home is loaned. Housing purchasing ability is assessed on whether loan repayments, interest, and maintenance charges take up more than a third of a household’s available income," OP explained in the release.
"An index result lower than 100 means that living expenses take up more than one third of a household’s income. An index above 100 means that living expenses take up less than a third of a family’s income," OP said.
Based on these calculations, it was found that the most affordable housing was in the city of Lahti and the affordability level was most problematic in Helsinki.
Housing affordability index in Finland’s largest cities
1. Lahti 135.6
2. Oulu 135.4
3. Jyväskylä 124.6
4. Kuopio 121.9
Nationwide average 109.4
5. Vantaa 107.2
6. Espoo 105.4
7. Turku 89.2
8. Tampere 85.8
9. Helsinki 66.7
"Housing purchasing ability has decreased everywhere but the impact of rising interest rates has been most pronounced where the prices are the highest. Then again, home prices in Helsinki have decreased more than in other cities, which has softened the decline. Home prices in Finland differ regionally more than household incomes, which means that housing purchasing ability is at its lowest in the most expensive areas," Widgrén said.
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