A “bubble” is inflating in the real estate market: the reverse side of the mortgage record

This year, the growth rate of the mortgage market in Russia may slow down to 15%, said Alexander Danilov, director of the banking regulation and analytics department of the Central Bank of the Russian Federation. The subsidized mortgage program no longer saves the day. First, in December the rate was raised to 8%. Secondly, the regulator itself plans to introduce additional reservations for preferential mortgages from developers, since the rate for this product is often reduced to almost zero due to the overvaluation of the apartment, which carries additional risks for the borrower. The current situation is fraught with the formation of a “bubble” in the mortgage market, experts told MK.

The volume of housing loans issued in December 2022 increased by almost 50% compared to November and reached a record amount of 697 billion rubles. Against this background, there were even suggestions that the authorities are considering the possibility of abandoning the preferential mortgage program. Then, at the end of December, they nevertheless decided to extend it immediately for a year and a half – until July 1, 2024, but by increasing the rate from 7% to 8%. Immediately there was an opinion that the program in this form has largely lost its attractiveness. In this regard, the market this year may slow down its growth by even more than 15%, as predicted by the Bank of Russia.

At the same time, curious calculations were published in January by the National Bureau of Credit Histories (NBCH). According to their data, in December 2022, the recommended family income for servicing a mortgage averaged 80.7 thousand rubles, which is almost 4% more compared to December 2021 At the same time, data by region often differ from this indicator upwards.Thus, in Moscow, the recommended level of family income is the highest: borrowers need to earn more than 153 thousand rubles.In the Moscow region – 118.9 thousand rubles, in St. Petersburg – 101.6 thousand rubles, in the Khanty-Mansi Autonomous Okrug – 90.8 thousand rubles, in the Primorsky Territory – 88.4 thousand rubles. That is, from 80.7 thousand rubles of the average required income, the family pays 26.9 thousand mortgages, and the remaining 53.8 thousand rubles comfortably lives even with children or other loans (for example, for a car). And all this should continue unchanged even in the context of the economic recession in Russia, double-digit inflation and the decline in real incomes of the population, which has been going on for almost 10 years with a short break for post-pandemic recovery. Experts point to other purely economic reasons for the slowdown in the mortgage market.

Oleg Repchenko, Head of the Analytical Center “Indicators of the real estate market IRN.RU”:

“Housing prices are very high today. Developers, accustomed to play on the increase, hardly go towards the buyer and are in no hurry to lower prices. But the cost of housing is now so out of touch with effective demand that neither preferential or even the so-called “zero” mortgage, the rates for which dropped to 0.01% last year, help sell apartments at an inflated cost.

But the fact is that the demand for apartments rests precisely on the cost per square meter, and not on the interest rate on the mortgage for their purchase. And the cost of housing in large cities today can not be called adequate. Prices jumped strongly in 2020-2021 – by 1.5-2 times, depending on the segment. The main reason is just the low rates on loans and deposits, which have warmed up the demand for housing purchases. Accordingly, prices rose. And today the situation is such that buyers agree to take mortgages at market rates, but subject to a decrease in the cost of housing.

At the same time, if we exclude force majeure shocks, and not only negative ones, but also positive ones, then we can say that the decline in prices in the housing market will continue in the coming years. According to our forecast, house prices should fall to 30% from spring highs or 15-20% from the current price level, thus returning to adequate levels in early 2020. Because the price increase of 1.5-2 times that we observed in 2020-2021 was not a market one, the economy and household incomes have not grown so much over the years. Housing has risen in price “thanks” to low rates on deposits and loans for the purchase of housing, which artificially warmed up the demand for apartments.

Mikhail Feldman, Director of Strategic Development Department, Sadovoye Koltso Group of Companies:

“In recent years, the growth in the value of real estate is not comparable with the growth in real incomes of citizens and their solvency. As a result, we can observe how some developers are postponing the start of open project sales. And also, which did not happen before, a number of developers are forced to reduce the cost of apartments, making it lower than the starting price due to lack of interest in the project.

Not the most joyful factors are the signs of a mortgage “bubble”. Firstly, a high proportion of sales involving mortgage funds, which indicates that the population does not have the opportunity to buy real estate for cash. Secondly, an increase in the average mortgage payment term: if earlier it was 17-19 years, today it is 20-22 years. The main risk here is the consumer’s inability to fulfill his debt obligations, which leads to a “debt hole” and bankruptcy. This happened in the USA in 2007, which provoked the beginning of the global crisis. But in our case, at the moment the percentage of overdue payments is very low, which indicates a high level of control over the situation.

Also, the market has become more unpredictable – if until 2019 certain patterns developed: “secondary” is more expensive than “primary”, in a good location the cost of real estate is higher than somewhere on the outskirts, etc., now many of these patterns no longer work . All these disproportions create a misunderstanding of the market structure not only among the consumer, but also among developers. It is difficult to assess profitability – both for buyers and for construction companies to calculate their business. Hence the inadequately inflated prices for many objects and low consumer demand.”

Vasily Timofeev, General Director of the St. Petersburg construction company City Solutions:

“The increase in the interest rate on preferential mortgages by 1%, which occurred at the end of 2022, will clearly reduce the number of people who want to use it. The unstable economic situation also affects, which in the future may make it difficult to repay the loan, this is also taken into account by borrowers.

Now there is a downward trend in prices for illiquid objects. For example, a developer with a “house in the field” for 1,000 small-sized apartments is experiencing certain difficulties with sales. Because now the buyer’s market, competition between developers is increasing, and people have become more cautious, more often pay attention to additional services: location, convenience of common infrastructure, security level, video surveillance and home automation. Shopping has become more thoughtful, and the buyer is more attentive and picky.

I would also note that an increase in the interest rate in the subsidized mortgage segment will reduce the spread (the difference between the best selling price and the best buying price) between the cost of apartments in the primary and secondary markets. This will lead to more liquidity in resale properties and will free up pent-up demand from owners of already built apartments who would like to buy a new building.”