House prices back to strong growth in CEE

On the radar

• Serbia’s central bank met our expectations and kept its key rate unchanged at 5.75%.

• Industrial output growth declined in February by -1.3% y/y in Slovakia and -1.5% y/y in Czechia.

• March inflation in Czechia was confirmed at 2.7% y/y.

• In Romania, March inflation landed at 4.9% y/y and February wage growth at 9.7% y/y.

• At 10 AM CET Czechia publishes current account data.

• At noon CET Serbia will release March inflation.

• In the afternoon, Poland is scheduled to publish trade and current account data.

Economic developments

This week, Eurostat released house price data for the last quarter of 2024. The rate of annual house price growth is increasing or is already at very high levels throughout the CEE. The sole exception is Romania, where the annual house price growth in Q4 2024 was 4%, currently below the EU average of 4.9% y/y, representing a slowdown compared to the first half of the year (6.1% y/y). The rate of growth also decreased in Croatia, Hungary, and Poland; however, annual price increases remain in double digits in all three countries. The slowdown in Poland is the most pronounced, following the coalition’s failure to agree on reintroducing a subsidized mortgage scheme for first-time buyers. Growth rates in Czechia (8.4%), Slovenia (8.5%), and Slovakia (7.9%) are also slowly approaching double digits. These increases are predominantly due to declining mortgage rates as monetary policy conditions are being relaxed. In our view, house prices are expected to continue rising, largely dependent on central banks’ decisions within the region.

Market developments

Serbia’s central bank met our expectations and kept its key rate unchanged at 5.75% at the meeting. The Central bank outlined that while inflation remains on a downward path, uncertain global environment could negatively affect global financial and commodity markets and thus lead to higher inflation down the road. In Poland, the central banker Kotecki thinks that during May’s meeting the decision will not be about cutting interest rates or not but by how much. On the other hand Tyrowicz is convinced that easing monetary conditions at this moment would harm the economy. Czechia’s central bank keeps all options open according to the Governor Michl. After the first impulse of strengthening of the CEE currencies on Thursday morning, during the day all the local currency pairs moved back to higher levels. Bond market shows mixed performance this week with long-term yields marginally lower in Croatia and Poland.

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