HRE Index: Flats stop rising

The good results of the housing market in 2019 fully coincided with the forecasts formulated by HRE Think Tank a year ago. At the end of 2019, the HRE index, which is a synthetic measure that simply illustrates the state of the housing market, assumed 0.694. This result consists of a set of 18 indicators that examine price changes, but also the condition of the banking, households and construction sectors.

The interpretation of this indicator and its components is such that both too high (over 0.85) and too low (below 0.15) readings suggest market imbalances.

It is very important, however, that the observed economic situation was not groundless. The financial situation of households was its key foundation.

Interestingly, the indicators of the economic situation in the banking sector are behind the decline in the HRE Think Tank index. This is surprising, as in 2019 banks granted housing loans worth almost PLN 63 billion. This is the highest result ever. On the other hand, we were still far from the credit boom in 2007 in terms of the number of loans granted. In 2019, there were almost 278,000, while 12 years earlier by 40 percent more.

Unfortunately, the coronavirus attack makes it difficult to continue this good run in 2020. It is hardly surprising. Because of the precautionary measures taken, both buyers and sellers, there is simply less on the market since the second half of March. For now, everything indicates that we are dealing with the transfer of transactions to the future, not their abandonment. This is confirmed, for example, by data on internet traffic, which suggests that Poles looking for flats so far do not change their plans. In addition, especially now many people in these uncertain times can come to the conclusion that it is real estate will be a safe haven for the capital.

HRE Think Tank forecasts that in the perspective of 1-2 quarters we will see a stabilization of apartment prices, even though at the end of 2019 apartments in the largest cities were more expensive by almost 13 percent y/y. The key feature of the housing market is important here – limited liquidity. Unlike the stock market, it is virtually impossible to sell on impulse. As a result, both the seller and buyer of apartments have more time to thoroughly understand the situation.

From the point of view of our forecast, however, the most important are the sellers themselves, who, as a rule, are not too shy and prefer to wait out the uncertainty than to sell the apartment at a discount. The effects are already visible. On March 27 (11 days after the school closing decision) we observe a 6 percent decrease in ads about the desire to sell flats.

Similar mechanisms operate among individual owners as well as development companies. The latter have at least 7 good years behind them. From this perspective, even several months of difficulties associated with coronavirus do not seem to be something that could shake the real estate market in Poland.

(WBJ)