OeNB Report 2024/15: CESEE Property Market Review
Antje Hildebrandt 1
In the CESEE EU countries 2 , macroeconomic fundamentals 3 were generally supportive for housing markets in 2023 and early 2024, which is partly reflected in dynamic house price growth across the region. Several key factors contributed to this positive trend. Consumer confidence, labor markets and real wage growth mostly developed positively. Moreover, financing costs for housing have moderated amid decelerating inflation rates. This provided a solid foundation for housing demand. Apart from factors that are more or less relevant across all CESEE countries, country-specific factors – such as housing support measures – also had an influence on price dynamics. On the supply side, a structurally low housing stock in CESEE adds additional house price pressure.
Source: ECB, Eurostat.
1 House price growth stronger in most countries in Q1 2024 than Q4 2023
After booming house prices 4 , 5 in 2022, 2023 marked a significant turning point in the house price cycle in CESEE. Having amounted to more than 15% in 2022, nominal house price growth in CESEE (unweighted average) decelerated to 6% on average in 2023. The average was depressed by a major growth setback in Czechia, Estonia and Hungary. In Czechia, house price growth decreased from 2022 by almost 19 percentage points to -1.7% in 2023, the weakest growth rate in the region. In Estonia and Hungary, house price growth also dropped by more than 15 percentage points, yet from very high levels in 2022. At the same time, house prices kept growing strongly in 2023 in several other CESEE EU countries, despite some moderation, first and foremost in Croatia but also in Bulgaria and Lithuania, followed by Poland. Compared to the EU, CESEE house price growth in 2023 was still (much) stronger in all CESEE countries except for Czechia.
In the first quarter of 2024, nominal house prices accelerated by 7.4% year on year (CESEE unweighted average) compared to 5.6% in the fourth quarter of 2023. Growth was strongest in Poland (+18.0% year on year), Bulgaria (+16.0% year on year) as well as in Croatia and Lithuania (more than 9% year on year, chart 1). In most CESEE countries, annual house price growth was stronger (or more or less the same) in the first quarter of 2024 than in the final quarter of 2023. The notable exception is Slovakia where house prices declined by 3% year on year, thus being clearly below the EU average.
Chart 1
Quarter-on-quarter house price growth rates for the first quarter of 2024 indicate very strong dynamics in Bulgaria (+7.1%) and Hungary (+5.1%). In Czechia, quarterly growth has been steadily increasing, which is also true for other CESEE countries. By contrast, quarterly growth was weakest in Slovakia (-1.7%, compared to 1.9% in the final quarter of 2023), possibly indicating that the house price recovery was short-lived in Slovakia.
2 Price gap between new and existing housing since mid-2022
Differences in house price changes exist not only across CESEE countries but also within countries (for instance regarding regional differences) or between different housing categories, specifically new compared to existing buildings. For the CESEE region on average (unweighted), house price growth rates for existing and new buildings moved more or less in parallel until mid-2022 (chart 2). From then on, price changes for these two building types have diverged, with prices for new buildings starting to increase more rapidly than prices for existing dwellings. In 2023 and early 2024, the price gap between new and existing dwellings widened most strongly in Hungary, Latvia and Romania. One key reason for the price divergence could be accelerating construction costs – particularly in 2022 and in early 2023 – which is reflected in higher prices for newly built houses. Moreover, the value of energy-inefficient housing went down due to much higher energy costs given the recent energy crisis (Latvijas Banka, 2023). Home buyers might also be more reluctant to buy an older, less energy-efficient house in light of (expected) renovation needs to make the house more energy efficient and consistent with EU regulations 6 . However, subsidies for home renovation are available in many CESEE countries. In Hungary, for example, a new home renovation program, put in place in June 2024, targets energy-efficiency measures for dwellings built until the end of 1990 (Magyar Nemzeti Bank, 2024).
Chart 2
3 Financing of housing subject to volatility
Over an extended period, CESEE house price dynamics were largely supported by low financing costs (chart 3). On the back of surging inflation followed by monetary tightening, financing costs had started to increase since mid-2022 and reached their peaks in 2023. In Bulgaria, which operates under a currency board regime, financing costs are lowest in CESEE and continued to decline or rather remained broadly stable, which was partly due to the low degree of ECB monetary policy transmission, given for instance strong competition in the banking sector (IMF, 2024a). Against the background of significantly decelerating inflation rates, the CESEE non-eur