Important note about Poland: single house owners pay only 1/3 interest (~3-3,25%) in Q3 and Q4 of 2022, then 2/3 interest (6-6,5%) in 2023. Also, in 2023 Poland will change the interbank offer rate (WIBOR) most likely to over-night rate, which will lower the interest payments even more.

With ~17% inflation, Poland looks more like short-banks, not real estate.

Expand full comment

Real Estate Watch: Three key factors in addition those outlined in the research article (1) % of existing mortgages that need to be refinanced in the next few years (2) the ability for borrowers to move to interest only products and extend term of loan to mitigate increased costs (3) the tightness of housing stock in each country / market.

Lastly I would add 2 key points - (1) typically liquidity completely dries up in single family housing and any price depreciation is drawn from such a small sample it is somewhat meaningless (2) the gains in the previous few years let alone decade - mean that isolated talk of a 10% correction is somewhat meaningless for all bar those who bought / financed at the end of the cycle.

Expand full comment

Andreas, thanks for this report.

However, shouldn't you add a couple more variables into this multivariate "bubble burst index"?

Something like property-value-to-household-income maybe?

Or property-value-to-gdp-per-capita?

Or property yield spreads over local sovereign yield?

Expand full comment

Hi Andreas. One important thing in the housing market: government subsidies or measures to mitigate impact in families. Are you taking that into account in your models?

E.g. in Portugal, where housing prices more than doubled in Lisbon in just 7 years, and where "everyone" has variable rates, government has made it mandatory for banks to renegotiate loan terms for people that are having issues paying their debt.

Just thought it could be interesting to include some sort of impact from such measures that governments are certain to take.

Expand full comment

Hi Andreas,

Nice article. I look forward to reading the next in the RE Watch serie.

I am not sure if the situation in the UK in relation to the prevalence of retail mortgages with fixed rates is as solid as pointed out in data. If I am not wrong, in the UK retail banking market there is no offer of fixed rates throughout the whole life of the loan. Max is 5 years of fixed rates: https://www.fca.org.uk/publication/research/switching-in-the-mortgage-market-update-august-2022.pdf

Best regards


Expand full comment

Thanks for your public newsletter. It is very grateful to have some macro views about Europe.

Expand full comment

Fixed alone doesnt acount for the duration of the "fixed" factor. e.g. UK has mainly only 2-3y fixed vs US with 30y fixed

Expand full comment

Great article with a lot of good insights.

One thing, though: chart 6 shows house prices rising every year (blue line above zero since 2012), yet your model estimates the probability of rising house prices at plus/minus 50% most of the time. It looks like your model needs some serious recalibration of its probability estimates.

Expand full comment

Great article as always.

The delta for interest rates should be adjusted, not absolute. It's not the same to move from 0 to 4 than from 8 to 12

Expand full comment

Thanks the blog post. Maybe prices can come down a bit in Sweden so I can afford my own place!

Expand full comment

US has lots of dynamics. Regional, city vs country, high end vs low end. Some of the high end is mostly cash and inventory remain tight, so drawdowns may be moderate like 10-20%. Areas with high leverage not so good. Really depends on inventory as to the level of correction, even in a slowing market.

Expand full comment