Housing prices expected to stabilize in next three years

Housing prices will stabilize, or even fall, after 2006, according to a recently published study. The study, conducted by Athens University of Economics and Business Professor Yiannis Halikias in cooperation with the firm Property, shows that housing prices will rise, on average, 1.2 percent this year, 3.7 percent in 2004 – the year of the Athens Olympics – 2.3 percent in 2005 and just 0.4 percent in 2006, as the market becomes more rational. The report was presented recently at Realty 2003, a real estate exhibition. Halikias used Property SA’s huge database, which records asking prices across the Attica region – not the prices at which transactions were actually conducted. This means that the prices in the model are somewhat higher than market prices. Forecasts were based on two main factors: supply of housing and construction costs. Those two factors account for 90 percent in the fluctuation of prices, with the other 10 percent determined by mortgage loan rates, the economic environment and the supply of property. The combination of these factors will lead eventually to a decline in prices, since both major factors will move accordingly, which means we are going to experience both a decline in the cost of construction and a rise in the supply of new houses. Construction costs will decline with the introduction of new building materials, technologies and methods. There will be also greater use of prefabricated elements. Already, the rate of cost increases is declining: In 1998, construction costs rose 6.4 percent, whereas in 2002 they rose just 2.2 percent. In the first quarter of 2003, costs are rising at a 2 percent pace, almost half the inflation rate. By 2006, construction costs will be rising at no more than 1 percent annually. At the same time, we will have a much greater supply of housing for sale and this will affect prices negatively. This year, the number of new homes has increased by 7 percent and this increase is expected to accelerate to 10 percent. A crucial factor that will allow the forecasts to be borne out is the incorporation of large tracts of land, especially in Mesogeia, near the new Athens Airport, into the town plan. (One other crucial factor that will both increase the supply and cut construction costs is the increasing involvement of large construction groups in housing construction, especially after 2004, when the number of large infrastructure projects in the Attica region will decline. At present, the housing construction market is dominated by small firms who do no more than one to four apartment buildings a year.) Of course, this slowdown, and eventual decline, in prices will not be uniform, but will depend on individual areas. In some of the most expensive suburbs of Athens, prices have been slowly declining since 2001.