Anyone wishing to purchase residential property in Q3 2022 had to dig deeper than usual into their pockets. Compared with the prior-year quarter, single-family homes cost 5.6% more and condominiums 7.6% more. The trend appears to be unbroken.
Owner-occupied housing is more expensive than ever before: Anyone wishing to purchase a single-family home in the third quarter had to pay 1.4% more than in the previous quarter. A condominium even cost 1.9% more than weeks earlier. Compared with the third quarter of 2021, single-family homes cost 5.6% more and condominiums 7.6% more. This is shown by the Raiffeisen Transaction Price Index. It measures the price development of owner-occupied residential property in Switzerland based on transaction data from Raiffeisen and the Swiss Real Estate Datapool. And Francis Schwartz, economist at Raiffeisen Switzerland, knows: "Demand for residential property has fallen somewhat due to the expectation of persistently higher financing costs. However, supply remains so tight that the decline in demand from extremely high levels is not yet strong enough to break the price momentum in the owner-occupied housing market. ".
Financing costs have more than doubled since the beginning of the year
These findings are also shared by the real estate experts at Credit Suisse and summarized in the "Real Estate Monitor Switzerland 3rd Quarter 2022" (see PDF in the appendix). Buyers of residential property will feel the effects of significantly higher inflation directly in the form of higher financing costs. The same applies to existing owners as soon as they extend their mortgage. Since the beginning of the year, the interest rate on 5-year fixed mortgages has risen from 1.23% to as high as 2.89%. After a brief interim low, interest rates subsequently rose again to 2.69% by the end of August. Financing costs have thus more than doubled since the beginning of the year.
Excess demand for residential property persists
Higher financing costs are reflected in declining demand for homeownership: the number of search subscriptions has fallen 10% since the end of 2021, and the number of transcations in the first half of 2022 was 8% lower than a year earlier. Despite this decline, however, homeownership searches are still more common than before the Covid 19 pandemic. Lower demand continues to be matched by too little supply, and new construction activity continues to decline. According to the real estate experts at Credit Suisse, the excess demand therefore remains.
Single-family houses in the country are very popular
The breakdown of price trends according to the Raiffeisen Transaction Price Index by municipality type shows that house prices rose somewhat more strongly in rural municipalities (+7.4%) and in centers (+6.8%) than in other types of municipality within one year. In the condominium segment, tourist communities recorded the strongest price increases (+11.5%). With an increase of 6.5%, condominium prices in center communities rose the least.
Condominium ownership in the Bern region is particularly in demand
Single-family homes in the eastern part of Switzerland (+13.0%) and the central part of Switzerland (+8.8%) recorded the biggest price increases within a year. By contrast, prices rose less strongly in southern Switzerland (+0.9%) and in the Bern region (+1.5%). In the case of condominiums, on the other hand, prices rose most sharply in the Berne region (+12.3%). The Central Switzerland region again recorded the lowest year-on-year price increases (+5.4%).
Real estate prices unlikely to decline for the time being
The real estate experts at Credit Suisse anticipate significantly lower price momentum in the coming quarters due to falling demand. However, as the high scarcity is supporting prices, they do not expect prices to fall for the time being. However, if interest rates continue to rise and demand falls more sharply, prices are likely to start falling in the medium term. The same would apply if Switzerland were to slip into a prolonged recession. However, the tight supply of residential property would reduce the drop in this situation.