UBS anticipates a slowdown in the rise in home prices
Published: Thursday, Apr 11th 2024, 13:10
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UBS expects a slowdown in the rise in home prices. Overall, prices for residential property are likely to rise by 1.3 percent in the current year, the bank estimated in a real estate study.
Specifically, condominiums are likely to increase in price by 1.5 percent and single-family homes by 1.0 percent, said UBS real estate specialist Thomas Rieder at a media conference in Zurich on Thursday. The key interest rate hikes by the Swiss National Bank (SNB) made themselves felt here. This has weakened the upward pressure on prices.
Last year, the average price of owner-occupied apartments in Switzerland rose by 3.5 percent and that of single-family homes by 2.5 percent, Rieder continued.
Owning a home more expensive than renting
The housing costs of owner-occupied homes are now higher than those of rented apartments. In 2023, this premium amounted to 10 percent. In 2021, an average owner-occupied apartment was still 20 percent cheaper than a rented apartment.
This difference is likely to be close to zero in 2024, said Rieder. This is because, on the one hand, rents are likely to rise faster than home prices. "We expect an increase of 2.5 percent for asking rents and 3 percent for existing rents," said the UBS economist.
In addition, utilization costs would decrease as a result of the SNB's interest rate cuts. "After the first interest rate cut in March, two further interest rate cuts are expected. This will make them more attractive again compared to rental apartments - even without a price increase," explained Rieder.
Massive increase in usage costs
In recent years, the rise in interest rates between mid-2021 and the beginning of 2023 made the use of owner-occupied homes massively more expensive. In 2021, the running costs (mortgage interest, maintenance, imputed rental value) for a condominium purchased at the median price of CHF 800,000 at the time were estimated at just under CHF 17,000 per year. "At CHF 26,000, this is currently a good 50 percent more," the study said.
At the same time, this median apartment has also become more expensive. The median price has now risen to CHF 880,000. For this reason, an additional CHF 16,000 in equity capital is required for the purchase.
For more and more households, the goal of buying their own home is receding into the distance. This is because in order to meet the affordability rules, "a household currently needs an annual gross income of a good CHF 150,000 - significantly more than the median household income of around CHF 115,000," explained Rieder.
Far fewer can afford home ownership
It is currently estimated that 15 percent of all households can still afford a median property. That is still 660,000 households, UBS estimates. Twenty years ago, it was still around 60 percent of all households.
An average household can currently only afford a 4.5-room condominium at the median price in just under a quarter of all economic regions in Switzerland. This is most likely to be the case in the Mittelland regions of Grenchen, Thal and Oberaargau. The study found that less than CHF 100,000 gross income would be enough to buy a home there.
"In the major centers and their immediate agglomerations, on the other hand, a median property can cost twice or even three times the Swiss median income, depending on the region." As a result, more and more households wishing to own their own four walls are left with the option of moving to a less expensive region in a decentralized location away from the major centers.
The strongest price increases last year were recorded in Graubünden and Upper Valais. Home prices also rose at an above-average rate in eastern Switzerland and the canton of Fribourg.
Big cities with the lowest price increases
At the other end of the scale were the major cities. Prices even fell slightly in the Geneva and Basel regions.
However, prices are likely to rise more strongly again next year. The housing shortage, lower financing costs as a result of lower key interest rates and an economic recovery could ensure stronger price momentum again in 2025, UBS explained.
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