The business cycle

Czech Republic: Has the housing market peaked?

By September 28, 2018 No Comments

The central bank raised the 2-week repo rate by 25bps to 1.50%, in line with its guidance, and stated that, overall, the economy is developing in line with expectations. The Council is monitoring the Brexit negotiations, but sees the risks to its expectations as balanced overall; thus, it has maintained its guidance for further monetary tightening towards the long-run neutral rate, which may imply further increases, of 100bps, in our view.

Our house price model suggests that, on average, price gains will be more modest, but still around 4-5% yoy this year and the next. Our calculations show that, on average, debt servicing costs should remain manageable, even with a further 100bps of tightening, but thanks largely to the ongoing wage increases. If wages are flat, the additional rate hikes ahead would begin to be too burdensome for the household sector, something that could be a problem if GDP growth stalls.