Central Bank warns about overheated housing market

The recent primary housing price hikes indicate that the Russian real estate market is close to overheating, Head of the Department of Financial Stability of the Russian Central Bank Yelizaveta Danilova warned in a comment for Izvestia.

Natalia Seliverstova | RIAN
Natalia Seliverstova | RIAN

The overheating on the mortgage market was predicted a couple of years ago when it became clear that Russians take out loans without considering their actual income, AMarkets Analytics Director Artem Deev comments.

Overheated market leads to increasing housing prices (by 25% last year and another 25% during H1 2021). Russian banks issued a record number of mortgages last year, worth over RUR 4 trln ($54.6 bln) in total — despite personal income growing much slower.

There is a serious risk of a housing bubble, meaning that eventually people will simply be unable to pay their mortgages.

“The Central Bank is aware of this trend and seeking to cool down the market. The recent key interest rate increase will gradually pump up mortgage interest rates (from 7.2—7.4% to 8% on average nationwide, by the end of the year). The soaring cost of housing (especially in big cities) will force Russians to be more pragmatic when considering a mortgage. Mortgage lending growth is expected to slow down this year and not exceed RUR 3 trln ($40.1 bln),” Artem Deev suggests.

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