Strong home price growth continued with transactions rising in the first quarter, and while May's first-sale prices did not change direction, the decline in transactions did
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
House prices continue to rise, both in the first quarter of 2025 and, according to Flat Zone's data for first sales of new builds, in May. However, May's transaction dynamics may be pointing to a ceiling on buying demand. The CNB's discussions on financial stability and macroprudential policy leave the inflation risks associated with the property market on the shoulders of the CNB's monetary, i.e. interest rate, policy. This raises the risk of a longer pause in the CNB interest rate at 3.5% than in June alone. However, this may not fully and permanently translate into longer rates on the yield curve if tighter CNB monetary policy mutes the inflationary charge in the economy. But for that we need more structural reforms to dampen inflationary pressures from the labour market. And the CNB is short on that.
According to CSO data, in the first quarter of 2025, the prices of older apartments rose by 4% quarter-on-quarter, while the prices of new apartments for first sale in Prague rose by 3.4%. Offering prices then recorded an even brisker growth of 6.3%. Year-on-year, the growth of realised prices of older flats and offer prices accelerated to 16%, while the growth of new flats for first sale in Prague accelerated above the 12% mark.
Flat Zone's Q1 transaction data confirms stronger quarter-on-quarter price growth (new and older apartments) of 6.9%, which translated into a 16.5% year-on-year increase. The average price thus reached the level of just under CZK 94 thousand per sqm (see Chart 9, or in more detail on the CBA monitor here). The price growth took place against the background of an increasing number of transactions during the first quarter (see Chart 5).
Flat Zone data on first sales of new flats may indicate a stabilisation of the market. The data show that in May, transaction prices rose by 2% month-on-month to almost CZK 136,000 per m², while in Prague they exceeded CZK 161,000 per m². This implies a provisional quarter-on-quarter increase of 1.7% in the second quarter, as well as a slight slowdown in year-on-year growth to below 12% from almost 14% in the first quarter. Transaction numbers for first-time sales, however, declined, with the monthly average of 1 270 units sold in April and May, roughly 20% lower than the average of 1 580 units per month in Q1 (see Chart 6).
This is the fifth quarter in a row that house price growth has outpaced wage growth. This follows a decline and stabilisation of prices during 2022 and 2023 (see Chart 1). However, from a longer-term perspective, this is nothing new - house and property prices have repeatedly outperformed not only wage growth but also rent growth over the past 15 years (see Charts 2 to 4).
And what does the CNB say? According to the June minutes, its macroprudential policy will not bring monetary policy relief. The minutes state that "the volume of high-risk loans combining high LTVs and DSTI or DTI remains very low and does not pose systemic risks". In other words, the real estate market remains in the hands of the CNB's monetary, i.e. interest rate, policy. This is through higher pressures from imputed rents on core (and thus headline) inflation, which is what we are currently seeing (see comment here). As a result, there is an increased risk that the pause in the CNB's rate cut to 3.5% will last longer than one monetary policy meeting (I discuss this in more detail in the commentary: June sentiment delivers mostly encouraging news for growth, the labor market and core inflation). For completeness, the CBN's macroprudential measures remain off for the DTI and DSTI (debt service-to-income assessment of applicants) indicators and the LTV (mortgage-to-value) indicator remains at 80% (or 90% for under-36s).
The following is a graphical overview of transactions, property prices and a more detailed price overview, which is also available on CBAmonitor.
House price growth outstrips wage growth, and more so in the last 10 years
Comparison of house price growth to income, GDP, credit and rental prices over time
Transactions in new buildings during the second quarter bring change
May prices of first sales of new buildings continued to rise
House price dynamics according to the CZSO
The graphical accompaniment is available on the CBAmonitor.
According to CSO data, realised prices of older flats in the Czech Republic rose by 4% quarter-on-quarter in Q1, following a 3.6% increase recorded in the previous quarter. The dynamics thus surpassed the average 2.9% growth (as of the end of 2019). Prices rose by 3.5% in Prague and 4.2% outside Prague. As realised prices of older apartments rose by an average of 3.6% quarter-on-quarter in the previous three quarters, their year-on-year growth accelerated to 15.8% from 14.2% in the previous quarter, while a year ago they showed essentially zero year-on-year change. In the past year, 2024 saw an average 7.8% y-o-y change in offer prices for new and older dwellings (after -3.2% in the previous year), with Prague seeing an 8.4% y-o-y change (after -2.6%).
According to the CSO data, realised prices of new first sales in Prague rose by 3.4% q-o-q in Q1 2025, following a 3.9% rise in the previous quarter. Their dynamics thus surpassed the 2% average growth (as of the end of 2019). This resulted in a 12.4% y/y growth in the realised price of new flats in Prague in Q1 2025. In Prague, the average change in realised prices of new flats through first sales in 2024 was 1.8% yoy (after -5.5% in the previous year).
According to the CSO data, offer prices of new and older flats in the Czech Republic rose by 6.3% q-o-q in the early quarter of this year, after a 3.1% rise in the previous quarter. This surpassed the 2.3% average growth (as of the end of 2019). In Prague, these prices were up 7.9% quarter-on-quarter after 3.4%; vs. the long-term average of 2.1%. Year-on-year, they then rose by 15.7% in the Czech Republic in Q1 2025. In the past year, 2024, the average change in offer prices of new and older dwellings in the Czech Republic was 5.1% y-o-y (after 0.4% in the previous year), of which Prague's was 5.4% y-o-y (after 1.4%).
Comparing their price levels with the pre-pandemic era
In the Czech Republic, the prices of older dwellings reached 1.8 times the pre-pandemic price in the last quarter of 2019 or 3.2 times the price before the introduction of the exchange rate commitment in the last quarter of 2013. These multiples reached 1.6 and 2.6 in Prague and the rest of the country, respectively; and 1.9 and 3.4 in the rest of the country. Realised prices of new dwellings, according to CSO data, reached 1.5 times compared to the pre-pandemic level and 2.5 times compared to the end of 2013. Offering prices were then 1.6 times higher than in the pre-pandemic period and 2.6 times higher than at the end of 2013. These multiples reached 1.5 and 2.6 in Prague and the rest of the country, respectively; and 1.7 and 2.5 in the rest of the country.
Note: Unless otherwise stated, we work with seasonally adjusted figures in the text. The annualized development shows possible year-on-year growth in the annual outlook if the current month-on-month dynamics were to be maintained.