Prices of New and Nearly New Apartments and the Number of Transactions

According to my estimate, the overall year-on-year growth in realised residential property prices slowed from 14.0% to 12.3% in the second quarter. Prices of existing flats nevertheless continued to rise at a very strong pace, while prices of new flats in Prague fell by 1% quarter on quarter according to the Czech Statistical Office, leading to a marked slowdown in their annual growth rate. However, the surprising decline in Prague new-build prices is not broadly corroborated by transaction data from Flat Zone, and I would therefore not yet interpret it as the beginning of a more pronounced cooling of the housing market, although the gradual normalisation of the mortgage market should, with some lag, also be reflected in housing market developments. This should be transmitted through two channels – the CNB's macroprudential regulation and higher market interest rates.

According to Flat Zone statistics, the price of apartments sold in the Czech Republic approached 100,000 crowns per square meter in the second quarter, while in Prague it exceeded 165,000. However, price growth remains stronger than the aggregate figures suggest, as these are dampened by a shift in transactions toward less expensive apartments and regions. Combined with more moderate growth in asking prices and higher market interest rates, this may contribute to a slowdown in the growth rate of actual prices over the course of a year. However, a more significant decline in price momentum will continue to be held back by supply-side constraints and stronger mortgage frontloading.

This continues to boost activity, although not at the rapid pace seen in 2023-2024.

Comment by Jaromír Šindel, Chief Economist of the CBA: According to the Czech Statistical Office, realised prices of older flats in the Czech Republic rose by 3.7% quarter-on-quarter in the third quarter, which exceeds income growth for the seventh quarter already and maintains the too brisk annual pace of property prices at around 16%. Higher property prices are also making their way into the CNB's macroprudential capital policy settings, with discussion over the (arguably unscary) possible introduction of a sectoral systemic buffer, as well as less intuitive discussions over the role of investment activity by non-financial corporates in setting the countercyclical capital buffer.

Economic commentary by Jaromir Šindel, Chief Economist of the CBA