Real estate prices are on the rise again

Real estate prices are already rising again. The drop in mortgage prices and the easing of conditions for obtaining them supports people's unceasing interest in owning their own home. After the crisis period caused by the coronavirus epidemic, when CNB interest rates fell to historic lows and interest in real estate grew at an unprecedented pace, followed by their increase in an attempt to tame inflation, the world is returning to its old ways.

The past years have really rocked the real estate market. The epidemic of the coronavirus, when the two base rates of the CNB, Lombard and discount, reached a record low level (1% for Lombard and 0.05% for discount), the war in Ukraine and the related shortage of building materials and the energy crisis, shot real estate prices to record highs . Along with this, year-on-year inflation also rose sharply. This reached 18% in September 2022, according to the Czech Statistical Office, which is a value equal to the situation in 1993 and thus practically the highest in the history of the independent Czech Republic.

Averting the crisis and returning to normal

After successfully overcoming the crisis period and taming inflation, there was a gradual reduction of interest rates. The Lombard rate is currently set at 5.25% and the discount rate at 3.25%. The current level of inflation of 2.6% shows that the central bank is once again managing to adhere to the two percent inflation target.

In addition, the CNB again canceled the mandatory monitoring of DSTI indicators from June 2023 and DTI from January this year. The only indicator that has remained valid is the LTV (Loan to Value), which indicates what percentage of the real estate price the buyer can receive from the bank in the form of a mortgage. The LTV is currently set at 80%, 90% for applicants under 36 years of age. All the mentioned changes in the availability of mortgages had a significant impact on the situation on the real estate market.

The slow pace of construction and high demand continue to push prices up

The main pressure on the growth of real estate prices is still the persistent shortage of apartments. The Czech Republic belongs to the average of European countries in the rate of construction. However, a certain change for the better can be seen over the past years. If in 2019, according to Deloitte's analysis, the Czech Republic had 465.2 apartments per thousand inhabitants, by 2023 this number had increased to 473. In 2023, there were 3.52 new apartments completed per 1,000 inhabitants, compared to the figure of 3.41 from in 2019. In total, this is about 31,800 new apartments.

According to the Ministry of Finance, the Czech economy is expected to grow by 1.1% in GDP in 2024 and by 2.7% in the following year. This signals an increase in real wages and subsequently a greater interest in buying real estate. As for interest rates, the forecast of the 3M PRIBOR interbank rate, currently at 4.3%, is 3.8% for 2025 and 3.3% for 2026. This indicates a possible future decline in the prices of all interest rates and therefore further discounting of mortgages.

Time to sell or buy?

If you are thinking about buying real estate, now is the ideal time, according to Jan Křiváček, CEO of Homeland. "Real estate prices have started to rise again after a long-awaited decline. In addition, the current situation and forecasts of experts predict further increases, which, unless an exceptional situation occurs, will continue at a constant pace. Real estate is a stable, conservative investment that does not lose value over the years, especially in lucrative locations, such as large cities such as Prague or Brno and their immediate surroundings. As we are still relatively at the beginning of the growth period and mortgages are again available to the general public, there is no better time to buy real estate," says Křiváček.

The same applies to selling real estate. "Due to the great interest of people and favorable prices for the time being, many potential buyers are deciding right now to take advantage of the situation before prices rise and real estate becomes unaffordable for them," he comments on the situation. The most ideal situation has therefore arisen for those who are thinking about exchanging housing. They can relatively easily sell their existing property, thereby obtaining the necessary liquidity, and buy a new one at a still favorable price.

Prague as the city with the second least affordable housing in Europe

Prague has long been considered the city with the most expensive housing in Europe, with the average resident needing 13.5 years' salary to buy their own home, according to Deloitte. However, it was recently overtaken by Amsterdam, where the average buyer has to save 15.1 of the average gross annual salary. The third city in the ranking, right after Prague, is traditionally Bratislava with its 13 average gross salaries. On the contrary, the cheapest housing is in Rome, as the average resident there only needs to save 6.9 average annual salaries.

However, the new metropolitan plan, which was approved at the end of 2021 and from which Prague promises the creation of thousands of new housing units, especially thanks to the use of a large amount of brownfields, may bring a chance for change, at least in the Czech capital in the coming years.

Olomouc and Plzeň became the most expensive in percentage terms

As can be seen from the text so far, Prague is the area with the most expensive housing in the Czech Republic, while sales in its territory make up roughly 60% of the Czech real estate market. However, if we look at the percentage change since the beginning of the year, according to Deloitte's analysis, Plzeňský and Olomouc region recorded the largest price increase. In the Pilsen Region, prices for the first half of 2024 rose by 12% to an average of CZK 74,600/m2, and in the Olomouc Region by even 15% to CZK 81,200/m2.

The third highest increase, specifically by 11%, was recorded by the Liberec and Moravian-Silesian regions. Prices there rose to 67,200 CZK/m2 in Liberec and 47,700 CZK/m2 in the Moravian-Silesian region. In fourth place are Prague and the Zlín region, where prices rose by 8%. Prague reached an average price of CZK 132,000/m2 and the area around Zlín 62,800 CZK/m2.

With a 5% increase, prices in the Central Bohemia region reached CZK 83,100/m2, in South Moravia, which is the second most expensive in the republic, at CZK 104,500/m2 with a growth of 3%, and in the Hradec Králové and Pardubice regions, prices reached CZK 76,000/ m2 and 76,400 CZK/m2 with a similar growth of 2%.

Prices are not rising everywhere, some regions continue to fall

Although the overall average price in the Czech Republic increased by 6.5% during the given period and amounted to CZK 101,700/m2 in the second quarter of 2024, in some regions, despite possible quarterly growth, price declines prevailed from the point of view of the entire half-year.

Although the Vysočina region recorded an increase of 9.2% in the second quarter of 2024, compared to a drop of more than 11% in the first quarter, the total price drop reached approximately 3%. A similar development was recorded by the South Bohemian and Karlovy Vary regions, both with a decrease of 3%, or Ústí with a decrease of 1% between the end of 2023 and the second quarter of 2024.