November 3, 2023

How will the affordability of residential real estate change in 2024?

We analyzed the housing data for the last 7 years and present the real estate future trends for 2024 according to CDP Center.

This question concerns both those who plan to buy new house or apartment or plan to rent. The topic is especially relevant for residents of large cities.

To highlight trends for 2024 CDP Center analyzed the data of the last 7 years 2015-2022 and data for 2023.

First of all, we suggest to look at the dynamics of house prices in real and nominal value. We believe that assessing price growth in nominal value allows us to assess how the availability of real estate for purchases for foreign investors in the property in the country changed.

Among 36 states average house prices in real value increased by 35% since 2015. In the Euro area the average growth was 30% – excellent result for developed countries. For the same period average prices in nominal value increased by 74%. In the Euro area due to more stable economy the price growth (nominal value) reached 44%.

Hungary, Iceland, Portugal, Luxembourg, the Czech Republic and the Netherlands are in the TOP 10 countries in terms of real estate value growth in both real and nominal value.

New Zealand, Canada and the USA are in the TOP 10 in terms of growth in real value, but in terms of nominal value they didn’t enter the TOP 10.

Data for 2023 indicates that price growth continues in some countries on the list, especially in Hungary, Luxembourg, the Czech Republic, Canada and the United States.

The smallest growth in real estate prices over 7 years, both in real and nominal values, included: France, Japan, Sweden, Belgium, South Korea. At the same time, Italy and Finland showed decline in the prices of property in real value.

We expect that in 2023 countries which showed relatively low growth rates during the last years continue their low growth dynamics or slow down even further.

Based on data for the last 7 years, we observe the strongest correlation between the value of real estate and the growth rate of Gross domestic product (GDP) and the growth rate of Household disposable income, per capita. The only exceptions are three countries with a large share of outer demand for holiday homes coming from non-residents: Italy, Spain and Greece.

Based on forecasts for GDP growth and for personal income on 2024, we expect that house prices will continue to rise.

Property rental rates have risen less dramatically than purchase prices.

On 36 countries average, Rent prices since 2015 till 2022 increased by 21 percent. In the Euro area the growth reached 9.2 percent.

Turkey became the absolute global leader in terms of rental rate growth (121.2). Turkey result almost doubling to Estonia (58.6), taking the 2nd place. Only in 2 countries out of 36 rental rates decreased over the past 7 years - in Japan and Greece.

At the same time, in countries such as Slovenia, Poland, Ireland and Austria, we can say that a significant increase in demand from expats played a significant role in the increase in rent. And in countries such as Turkey, Hungary, Estonia, Lithuania, Latvia and the USA, property owners began to raise rental rates not only in response to the growth of effective demand, but also in order to increase their profitability following the growth in real and nominal value of real estate.

At the same time, the dynamics of rental rates for the first 3 quarters of 2023 tells us that in the vast majority of countries the increase in rental rates is accelerating and we will probably see a continuation of this trend in 2024. It is likely that property owners will continue to increase their profitability to compensate for the inflationary losses of recent years.

As for the affordability of purchasing real estate, analysis in 28 out of 35 countries showed that the affordability of real estate for residents of the country has decreased and only in five countries affordability increased- Finland, S.Korea, Italy, Bulgaria, Romania.

On average, the affordability of purchasing house (relative to income levels) decreased by 18% across 35 countries. Across Europe by 18.6%.

We assess the likelihood of a significant decrease in the growth rate of real estate prices in 2024 in countries with the most significant decrease in the affordability of housing for residents. Also there may be some exceptions among countries with a continuous growth of highly qualified migrants or increasing in demand for vacation real estate.

In the group of countries with the least decrease and (or) small increase in housing affordability, pent-up demand for vacation property is likely to accelerate property prices in 2024 (Italy, Croatia, Bulgaria and likely Spain).


Price to income ratio (by OECD)

The price to income ratio is the house price index (in nominal value) divided by the disposable income per head (in nominal value) and can be considered as a measure of affordability.

In contrast to the Real Price Index which measures the cost of housing the price-to-income ratio attempts to measure housing affordability. It is calculated by dividing house prices by average disposable income so that higher values indicate less affordable housing.

DISCLAIMER: The material is for informational purposes only, you should not construe any information from this material as legal, tax, investment, financial or other advice.

Dear colleagues, when using the materials of the article, please refer to the source CDP Center.

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