In the past two years, buying has been more expensive than renting. Despite this, home prices have not fallen. And now the National Bank has already lowered interest rates again.
The demand for condominiums is increasing again. According to the consulting firm Wüest Partner (WP), the number of search subscriptions has increased by 7 percent since the middle of last year. Significantly more people are now thinking about buying their own home.
Cheap mortgages
One reason is the interest rate situation. She has relaxed significantly over the past six months. From autumn 2023 onwards, people in Switzerland could hope that interest rates would no longer rise. This came after the Swiss National Bank (SNB) made a “zero decision” for the first time in September after five increases in a row. In March, to the surprise of many, there was even another reduction.
This has pushed mortgage interest rates down in the second half of 2023: the benchmark rate for ten-year fixed-rate mortgages, which was 2.8 percent last summer, has now been at 2.2 to 2.3 percent for five months. Short-term Saron mortgages have also been available for around this price since the interest rate cut in March.
Pressure from the rental housing market
However, it is not just the lower interest rates that are making home ownership more attractive again. The situation on the rental housing market also contributes to this. This has now dried up so much that everyone who can reasonably afford it is at least considering whether they want to buy a home.
In contrast to rental apartments, there is no extreme shortage in the home market. The number of advertised condominiums has increased in the past two years. Not that more is being built in this area than rental apartments. According to WP, new building permits for condominiums last year were almost a quarter below the average for the past ten years. But there are a relatively large number of used objects coming onto the market.
Because these properties are offered at very high prices, it takes longer to find a buyer. “Many potential buyers are not prepared to meet the high price demands, while those willing to sell see no reason to reduce their price expectations,” says Robert Weinert, partner at WP. The result: properties stay on the market longer, so there seems to be more supply. At the same time, fewer transactions are taking place: According to Raiffeisen, the number of registered open transactions was 25 percent lower in the first quarter of 2024 than a year ago.
Where buyers and sellers meet and properties change hands, there is a significant increase in prices: condominiums became 3 percent more expensive last year. According to Weinert, there are no signs of a trend reversal for the current year either: “We have even raised our forecast: instead of 1.2 percent price increases, we are actually expecting an increase of 2.5 percent this year.”
Renting will soon be more expensive than buying
The fact that home prices have risen more or less consistently since the interest rate turnaround in 2022 is special in that the cost of owning a home has almost doubled at times after the end of the low interest rate phase, as Raiffeisen has calculated. It was cheaper again to live in a rented apartment than to buy your own four walls with a mortgage.
However, this may have already changed again with the SNB’s interest rate cut in March. For Raiffeisen all it took was this one interest rate step so that property for new buyers would once again cost the same as renting. Any further downward interest rate step will result in the cost of owning a home being lower than that of renting an apartment. Given this prospect, it is only rational for sellers to insist on their asking prices. Buyers’ willingness to pay could soon increase again.