The OeNB property market monitor of April : Residential property price growth in slowed down markedly in the second half of Martin Schneider, Karin Wagner, Walter Waschiczek Residential property price growth continued to moderate considerably in in the fourth quarter of, with property price rises slowing to +.% year on year and declining by.% quarter on quarter (compared with.% in the third quarter of ). According to the OeNB s fundamentals indicator for residential property prices, residential property in remained to be overvalued by 9%, unchanged from the third quarter. For as a whole, the indicator suggests that prices are justified by fundamentals ( % below fundamental values). Housing loans to households continued to grow only moderately, although the conditions for taking out housing loans remained favorable. The foreign currency risk of housing loans in foreign currency remained high. Following the decision of the Swiss National Bank in January to discontinue the minimum exchange rate of the CHF, the share of foreign currency housing loans increased noticeably. Furthermore, the share of variable rate loans in total housing loans in is very pronounced by international comparison and continues to rise, which implies with considerable interest rate risk. Price growth continues to slow Slowdown in price growth stabilizes in the second half of The slowdown in residential property price growth first observed in mid- did not let up throughout the second half. While price pressures had inched up to +.% year on year in the first half in, they moderated considerably in the second half (+.%). Compared with the first half of, prices declined by.% in the second half. In, property price growth had continually subsided since the fourth quarter of, coming to +.% year on year in the fourth quarter of. Compared with the beginning of the year (Q: +.%), price increases had therefore decelerated markedly. Quarter on quarter, the contraction registered in the third quarter (.%) was followed by a slight upward movement in the closing quarter (+,%). Oesterreichische Nationalbank, Economic Analysis Division, martin.schneider@oenb.at, karin.wagner@oenb.at and walter.waschiczek@oenb.at. The results presented here do not relate to the appraisal of individual properties, and they should not be interpreted as recommendations for either property purchase or sale.
Residential property prices in Q Q Q Q H H H +, +, +, +, +, +, +, +, +,7 +, +, +, excl. +, +, +, +, +,9 +, +, +, +,7 +, +, +, +, +, +, +, +, +,9 +7, +, +,7 +,7 +, +7, Quarterly change in % Change on previous period in %,, +, +,9, +, +, +, +,7 +, +, +, excl.,, +, +, +, +,7 +, +, +,7 +, +, +, +,, +, +,, +, +, +, +,7 +,7 +, +7, Index (=) Index (=),7,, 9,,,7 7,,, 9,,7 7, excl.,, 7,,,,,,, 7,,,,, 7,,,,,, 9,,7,,9 Source: Prof. Wolfgang Feilmayr (Department of Spatial Planning, TU Wien), OeNB. For excluding, by contrast, price growth accelerated further at +.% in the fourth quarter of year on year (after +.% in the third quarter, also year on year). Overall, price increases have moderated, which is particularly evident in the quarter-on-quarter changes (Q:.% and Q:.%, see the lower right-hand panel of the chart below). - Residential property prices in excluding - Trend - - - Quarterly change in % - - Trend - - Source: Prof. Wolfgang Feilmayr (Department of Spatial Planning, University of Technology), OeNB. Price trends differ across market segments : price growth continues to flatten In a comparison of market segments since 7, condominiums in had registered the most pronounced price growth. Their prices stabilized somewhat in, but in the used condominium segment inflation started to rise again noticeably in mid-. While prices in this segment had still advanced considerably in the first half of (+9.% year on year), inflation clearly slowed down from the middle of the year and came to +.% in the fourth quarter. The growth of prices for new condominiums flattened, year on year, from +.% in the third quarter to +.7% in the final quarter of. The decline of building plot prices came to a halt in the closing quarter of last year (note, however, that in this segment the number of transactions is low compared with the condominium segment).
- Residential property prices in by market segments Total Used condominiums New condominiums - Condominiums, total Single-family houses - Source: Prof. Wolfgang Feilmayr (Department of Spatial Planning, University of Technology), OeNB. Residential building plots - owner-occupied housing Developments in the individual market segments in excluding differed from those in. In the most important segment, single-family houses, inflation still remained at a significant level in the fourth quarter of, but it moderated against the previous quarter (Q: +.%, Q: +9.%, both year on year). Building plot prices likewise show a strong uptrend (Q: +.%, Q: +.7%, both year on year). For new condominiums, the decline in prices observable since the fourth quarter of came to a halt in the fourth quarter of (.% year on year). - Trend - Trend - - Jan- Jan- Jan- Jan- Jan- - - Residential property prices in excluding by market segments Total Used condominiums New condominiums - - - - - - - Jan- Jan- Jan- Jan- Jan- - Condominiums, total Single-family houses - - Residential building plots - owner-occupied housing - - Quarterly change in % Source: Prof. Wolfgang Feilmayr (Department of Spatial Planning, University of Technology), OeNB. - Quarterly change in %
Rental yield slows down further The house price-to-rental value ratio, i.e. a priceearnings ratio for residential property, captures the relation between the cost of owning residential property and the return on renting it out. Up to, this ratio had been on the decrease; this did not reflect so much a decline in residential property prices, but rather an increase in rental 9 House price-to-rental value ratio Index, = 99, average excluding Source: OeNB, Statistics, University of Technology. excluding, average yields. Thereafter, residential property prices moved upward and rental yields contracted markedly. From onward, the growth of residential property prices in clearly outpaced that of property prices in excluding. For this reason, the increase in the ratio between house prices and rents recorded in patently deviates from the long-term average. Residential construction in remains flat Residential construction remains subdued Residential construction in continued its tepid growth. Real housing investment advanced slightly in (+.%) after having contracted in the two previous years. A rather dynamic first half year (thanks to mild weather conditions) was followed by a slowdown in the second half of the year. Production output and the number of annual hours worked in construction also point to weak developments in this segment. For the first quarter of, survey results released by the European Commission ( Home improvements over the next months ) signal a further contraction. Leamer, E.. Bubble Trouble? Your Home has a P/E Ratio Too. UCLA Anderson Forecast, June. Rental costs (as compiled for the CPI and checked against the microcensus data of Statistics ) include additional expenses (property owners are requested to indicate imputed rents). A high house price-to-rental value ratio may reflect that other asset prices are high, too, or that, in a given region, price growth is expected to accelerate.
Residential construction in (smoothed) (smoothed) - - - - - - - - Housing investment (real, left-hand Production index, building construction (left-hand Annual hours worked, building construction (left-hand Newly completed condominiums (right-hand Source: Statistics, WIFO, authors' calculations. - - - Housing investment Balance of positive and negative responses - 99 Housing investment, real (left-hand - - - - Home improvements over the next months (right-hand Source: WIFO, European Commission. Residential construction expected to see boost from public investment over the next five years Real estate transactions rose markedly in In a closed meeting at March,, the n government decided to launch a housing stimulus package. By assuming liability for EUR million, the government expects to kick-start investment in residential construction in the amount of EUR.7 billion. In the coming five years, these funds should translate into some, newly built apartments (on top of subsidized construction). Following a contraction in, the transaction volume in the n real estate market rose again markedly in. According to data published by RE/MAX and compiled from the land register by IMMOunited, the number of real estate transactions went up by.%, and the volume of transactions increased by.%. Overvaluation in declined in the second half of The OeNB s fundamentals indicator for residential property prices suggested to a 9% overvaluation for in both the third and fourth quarter of. This is a decline against the first and second quarter of (when prices were overvalued by %), which is mainly attributable to a reduction in real estate prices against the second quarter. Another contributing factor was the positive development of fundamentals. This pattern is not necessarily indicative of future price developments, though. For as a whole, the indicator suggests that residential property prices are in line with fundamentals; in the fourth quarter of, they were undervalued by % relative to fundamentals.
Housing loans continue to grow only moderately Expansion of housing loans to households driven by long-term loans Housing loans to households continued to expand at a moderate pace also in the first few months of. In February, the annual growth rate of housing loans extended by n monetary financial institutions (adjusted for reclassifications, valuation changes and exchange rate effects) came to.%, marginally up from.% recorded in October. This slight increase was again above all due to long-term loans (i.e. loans with a maturity of more than five years). The growth of housing loans with a medium-term maturity ( to years), by contrast, contracted. Housing loans 7 9 To households To domestic nonbanks Mortgage lending rates 7 % 7 9 Interest lock-in period of up to year Interest lock-in period of > years Risk factors Share of total loans in % 7 9 Foreign currency loans (left-hand New variable-rate loans (right-hand Debt burden of households % of disposable household income 7 9 Housing loans (left-hand Interest expense (right-hand Source: OeNB, WIFO. Favorable financing conditions Share of foreign currency-denominated housing loans increased following the unpegging of the Swiss franc The conditions for taking out housing loans have remained favorable. According to the euro area bank lending survey (BLS), banks credit standards for housing loans to households remained unchanged in the fourth quarter of, after they had been eased somewhat in the previous quarter. Credit terms also remained favorable. At.7%, the interest on euro-denominated housing loans to households fell by 9 basis points in January year on year. For variable rate loans (i.e. loans with a lock-in period of up to one year), which in accounted for more than % of all newly granted housing loans, the interest rate declined by basis points to.%. The effective annual rate of interest for housing loans, which reflects total borrowing costs (interest rate component and other related charges), sank by 9 basis points to reach.% in January. Even though the currency risk for housing loans granted to households has decreased noticeably in the past years, it still remains high. In spite of the continued scaleback of foreign currency-denominated housing loans, the share of such loans in total loans rose from.% to.9% in January. This in-
Growth in housing loans to nonbanks remains unchanged crease resulted from the strong appreciation of the Swiss franc following the decision of the Swiss National Bank on January,, to discontinue the minimum exchange rate of CHF. per euro. In February, the share of foreign currency housing loans edged down to.%. Almost all foreign currency-denominated housing loans outstanding are denominated in Swiss franc (close to 97%). At the same time, interest rate risk mounted. The share of variable rate loans (with a lock-in period of up to one year) stood at.9% in February year on year (February :.% year on year). Although housing loans has not been expanding fast in absolute terms, in the fourth quarter of, the ratio of housing loans to disposable income went up by. percentage points year on year on the back of very moderate income growth. Loans for home purchase and improvement granted by n banks to domestic nonbanks increased by.% in the fourth quarter of year on year. Also in this segment, euro-denominated loans continued to expand (+.%), while foreign currency-denominated loans clearly contracted (.%). Subsidized housing loans edged up only slightly in (+.%). News On October 9 and,, the OeNB organized a workshop entitled Are House Prices Endangering Financial Stability? If so, How Can We Counteract This? The proceedings of this workshop are available on the OeNB website at www.oenb.at/en/publications/economics/proceedingsof-oenb-workshops//workshop-no.-9.html. In addition, the OeNB quarterly Monetary Policy & the Economy Q/ features an article that compares real estate markets in, Germany and Switzerland (Schneider, M. and K. Wagner.. Housing Markets in, Germany and Switzerland. http://www.oenb.at/dms/oenb/publikationen/volkswirtschaft/mop- GEWI//Monetary-Policy-and-the-Economy-Q- /chapters/schneider_mop /mop q_analyses.pdf). Project: Developing an OeNB commercial property index: commercial property price movements serve as a leading indicator for the development of residential property prices. Moreover, an index that captures commercial property price movements in a regional breakdown is a useful monitoring tool, enabling observers to detect adverse trends and problems in regional and sectoral market segments. At present, lacks representative underlying data that could be used for calculating such an index. The necessary underlying data should come from banks, real estate agents and/or realtor associations, insurance companies, appraisers and other property market professionals. This project aims at compiling the dataset and developing an adequate methodological and analytical framework for building representative commercial property indexes and indicators. 7
Statistics for the first time published a House Price Index (HPI) on March,. The HPI reflects changes in the purchase prices of residential property throughout. Apart from the HPI, Statistics now also publishes an Owner Occupied Housing Index (OOH PI) reflecting price changes related to the acquisition and ownership of residential property. Both indexes will be released on a quarterly basis, dating back to the first quarter of.
Factsheet on s residential property market April Residential property prices and rents (Q=) (Q=) excluding (Q=) Rents (Q=) 7 9 excluding 7 9 Single-family houses New condominums Used condominiums 7 9 Single-family houses New condominiums Used condominiums 7 9 - total excluding - condominiums excl. - single-family houses OeNB fundamentals indicator for residential property prices (including subindicators) OeNB fundamentals indicator for residential property prices (Deviation from fundamentals in %) - - 99 99 Real residential property prices (Average 99 =) 99 99 Affordability (Average99 =) 99 99 Rentability (Average 99 =) 99 99 Price-to-building costs ratio (Average 99 =) 99 99 Ability to repay loans (Average 99 =) 99 99 Housing investment-to-gdp ratio (Average 99 =) 99 99 Interest rate risk (Average 99 =) 99 99 Additional fundamentals Real housing investment () - - - - - - 7 9 - Building permits () - - Real disposable household income () - 7 9,,,,, Population (), 7 9 Number of dwelling units Gross floor space Smoothed Original series Financing Housing loans () 7 9 To households To private nonbanks Housing loans to households (Transactions in EUR million, SA trend) 9 7 7 9 New loans for housing purposes (lefthand Net transactions (right-hand Lending rates for housing loans to households 7 % Basis points 7 7 9 Noninterest rate charges (right-hand Nominal interest rate (left-hand Credit standards and loan demand (bank lending survey) (Cumulated diffusion index: increase = easing),,,, -, 7 9 Demand for housing loans Credit standards for housing loans Risk indicators Terms and conditions for housing loans (bank lending survey) (Cumulated diffusion index: increase = easing), -, -, -, -, 7 9 Collateral requirements Loan-to-value ratio Indebtedness of households (% of GDP).. 7 9 Housing loan pattern (% of total loans) 7 9 Foreign currency loans (left-hand Variable rate loans (new loans) (righthand 9 7 Debt burden of households (% of disposable income) 7 9 Housing loans (left-hand Interest expenses on MFI loans (right-hand 7 9
Factsheet on s residential property market April A Residential property market Residential property prices Source Unit Level Jan. Dec. Jän. Q Q Q Q 9. Single-family houses and condominiums (e) =. 9.... +. +. +. +. +. +.7 +. +. +. +.9 (e) = 9..7... +. +. +. +. +. +.7 +.7 +. +7. +. excluding (e) =. 7.... +. +. +. +. +. +.7 +. +. +. +.9. Condominiums total (e) = 97..... +. +. +. +9. +.7 +9. +.7 +9. +7. +. used condominiums (e) =..9... +. +. +7. +. +. +9. +. +9. +7. +7.7 new condominiums (e) =..... +. +... +. +.7 +7. +9. +.9. excluding total (e) =..9... +. +. +.7 +. +.9 +. +. +. +.7 +. excluding used condominiums (e) =..... +. +.7 +. +. +. +. +.9 +.9 +.9 +. excluding new condominiums (e) =..9......7.. +. +.. +. +.. Single-familiy houses (e) = 7. 7........9. +.9 +. +. +. +.9 excluding (e) =..... +. +9. +.9 +. +. +. +.7. +7. +.. Residential building plots (e) = 9. 9...... +7. +. +. +. +. +.. +9. excluding (e) =..7... +. +.7 +7. +. +. +. +9. +.. +.. House Price Index (HPI) of Statistics New dwelling (d) = 7..7... +. +. +.9 +7.9 +.9 +. +. +... Existing dwelling (d) =..... +.. +. +. +. +. +7. +... Existing houses (d) =..... +.. +..9 +. +. +. +... Existing condominiums (d) =. 7.... +. +.9 +. +.7 +. +. +9. +7... Rents total (e) = 9..... +. +. +. +. +. +. +. +. +.. excluding condominiums (e) =...... +. +. 9.7. +.. +. +. +7.9 excluding single-family houses (e) = 9. 9.... +. +7...9 +. +.9.. +.. Rents excluding operational cost (as measured in the CPI) (d) =.. +.9 +.9 +. +.9 +. +.7 +. +. +. +. +. +. +.7 Residential and commercial property market transactions Volume of transactions (b) EUR billion. 7........ +.. +.... Number of transactions (b). 9........ +.. +...7. B Fundamentals OeNB fundamentals indicator for residential property prices Deviation of residential property prices from fundamentals in %. (g) % -..... -. -.7. -.9 -.7 -.. -. -9. -.7 Contributions of subindicators Contribution to total deviation in percentage points Real residential property prices (g) % points.........7..... -. Affordability (g) % points -. -.... -. -. -.9 -. -. -. -. -. -. -. House price-to-rental value ratio (g) % points.7..........7. -. -. -.7 Price-to-building costs ratio (g) % points. -.....7....9. -. -.9 -. -.7 Ability to repay loans (g) % points -. -.... -... -.. -. -. -. -.7. Housing investment-to-gdp ratio (g) % points.......9...9.... -. Interest rate risk (g) % points -.7.... -. -. -. -.9 -. -.7... -. Deviation of residential property prices from fundamentals in %. (g) % 9..... 9. 9...7. 9... -. -.9 Contributions of subindicators Contribution to total deviation in percentage points Real residential property prices (g) % points......7......... Affordability (g) % points -. -.... -. -.7. -. -. -. -. -. -. -. House price-to-rental value ratio (g) % points 9. 7.9... 9.... 9. 9. 7.9..9. Price-to-building costs ratio (g) % points.9........9.7.9.. -. -. Ability to repay loans (g) % points -. -.... -... -.. -. -. -. -.9. Housing investment-to-gdp ratio (g) % points............ -. -. -. Interest rate risk (g) % points -..... -. -. -. -. -. -.... -. Additional fundamentals. Supply-side factors Real housing investment (f) EUR billion.9...... +.9 +7. +... +.9 +.7. Building permits dwelling units in new residential buildings (d). 9..... +. +... +..9 +. +.9. Building permits gross floor space of new residential buildings(d) Million m 9...... +. +... +.. +. +9..7 Building prices residential buildings (d) =.7.... +. +. +. +. +. +. +. +. +. +. Building costs residential buildings (d) =.... +. +. +. +. +. +. +.9 +. +. +. +.. Demand-side factors Annual change in, persons Population (d) +9. +.... +79. +9. +. +.9 +. +9. +. +. +.7 +. Population (d) +. +7.... +. +. +.7 +. +.7 +. +7. +.9 +.9 +9. Real disposable household income (d) EUR billion 7. 7.... +..9 +.. +.. +.9... C Financing and indebtedness of households Financing. Housing loans to households Loan volume (c) 999M=..9. +. +. +. +. +. +.9 +. +. +. +.9 +. +. New loans to households for housing purposes (c) EUR billion..7.. +. +7. +. +. +9. +.7 +. +. +. +... Housing loans to private nonbanks or share in % Loan volume (c) EUR billion.7.... +. +. +. +. +. +. +. +. +9. +. Share of subsidized loans (c) %..9... 9. 9.9.. 9...9..7.9 Share of housing loans in banks' total assets (c) %........7.... 9.7 9... Lending rates for housing loans to households % Total (c) %.9.7..7.9..9...9.9.7..7.7 Variable rate loans (lock-in period of up to year) (c) %..7...9.9....7..7.9.9.7 Effective annual rate of interest (c) %.......7...7...... Housing-related aspects of bank funding Housing bonds (c) EUR billion..9..9.......7..7 +..7 7 Risk indicators (for households) Share in % Indebtedness (% of GDP) (d) %.......7........9 Housing loans (% of disposable income) (c, f) %...... 7.. 7.7...... Interest expenses on MFI loans (% of disposable income) (c, f) %......7......... Variable rate loans (% of total new loans) (c) %..9.. 7...7.9....9 7.9 77.9 7. Foreign currency loans (% of total loans) (c) %..7...9.....7..7.. 7. Sources: (a) Eurostat, (b) IMMOunited data for RE/MAX, (c) OeNB, (d) Statistics, (e) Prof. Wolfgang Feilmayr (Department of Spatial Planning, University of Technology) and OeNB, (f) WIFO, (g) authors' calculations.