How the housing market in St. Petersburg is changing in the situation of expensive mortgages

The realtor told how the housing market in St. Petersburg is changing in the situation of expensive mortgages

Alla Shinkevich, an expert on the St. Petersburg real estate market, spoke about how the situation in the real estate market has changed and how home buyers react to the fact that real estate renting has become significantly more profitable than buying it.

Alla Shinkevich, CEO of the «Nevsky Prostor» Real Estate Agency:

«Recently, significant changes have been planned in the real estate market, which affect both buyers and tenants. This is especially true for mortgage loans and rental rates. Mortgage payments, which make up the vast majority of the cost of purchased housing, traditionally exceed rental rates, especially when the initial payment is minimal (about 20%), and the bulk of the cost (80%) is covered by borrowed funds. Previously, when mortgage rates fluctuated around 7-8%, this gap was noticeable, but manageable. However, with rates rising to 17-18%, the difference between rent payments and mortgage rates has increased significantly.

In St. Petersburg, for example, rental rates showed a strong increase in August - September 2023, exceeding the 20% threshold. This increase was a reaction to the rise in housing prices, which began back in 2021. For a long time, rent did not grow due to migration processes, when supply exceeded demand. Now, as apartment prices have jumped, rental rates have followed them.

The increase in interest rates has led to an increase in the gap between the cost of rent and mortgage payments, in some cases exceeding the difference by 2—3.5 times. This is especially noticeable in the economy class segment. As a result, the number of people who want to rent a house is growing, as mortgage payments become unaffordable for many. Nevertheless, there are those who find benefits in buying a home and then renting it. By selling one apartment and investing the proceeds in the purchase of another, with the addition of a small mortgage amount, such investors can cover mortgage payments at the expense of rental income. However, this is possible only if there is a substantial down payment and a moderate mortgage size.

The period after the increase in mortgage rates was marked by significant changes in the housing lending market. Particularly, the beginning of the year showed a sharp decrease in the volume of mortgage loans, which is a direct consequence of an increase in interest rates. At the same time, the bulk of borrowers are people who find themselves in a difficult life situation when it is necessary to solve the housing issue here and now, or those who plan to promptly close the mortgage by selling other property.

For many borrowers, a short period of overpayment, even at high rates, does not have a critical impact on the financial situation. Many are also counting on the possibility of refinancing the loan on more favorable terms in the coming years.

Despite the reduction in the volume of mortgage loans, there is no proportional decrease in the number of real estate purchase and sale transactions. Statistics show that transactions have become more frequent for cash, which confirms the trend of selling property for the purpose of subsequent purchase of new housing without borrowing.

Interestingly, although the total number of mortgage transactions has decreased by about half, the market has adapted to the new conditions, forming so-called chains of transactions. In these chains, participants sell their own real estate to pay extra for new housing, often attracting a mortgage for only a small part of the amount. This demonstrates the flexibility of the market and the ability of participants to find optimal solutions even in conditions of financial instability.

The increase in mortgage rates has had a tangible impact on the structure of transactions in the real estate market, forcing many to reconsider their home purchase strategies and give preference to cash payments and more deliberate financial decisions.