Q4 2023: Price changes in the 15 largest urban areas
In 2023, real estate prices in Switzerland saw the smallest yearly growth since the subprime crisis, but the market is showing signs of recovery
The Swiss real estate market in 2023 navigated through a year of the slowest price growth in fifteen years, with increases under 1% for both apartments and houses. Factoring in inflation, this translates to a real decrease in property values. Even more remarkably, the number of transactions dropped 25% compared to the historical yearly average. Looking ahead to 2024, cautious optimism prevails, with expectations of modest recovery in growth and a potential reduction in key policy interest rates.
Modest Price Growth Amidst Challenging Conditions
In 2023, the Swiss real estate market recorded its lowest annual increase in prices for the past 15 years, with apartments rising by only +0.9% and houses by a mere +0.7%. This subdued growth trend was primarily influenced by the sharp interest rate hikes started in early 2022, significantly dampening demand. Notably, Switzerland’s real estate market demonstrated resilience compared to its neighbours; while Germany and France experienced price declines of -4.8% and -1.8% respectively in 2023, Swiss prices remained steady, albeit with growth slowing down significantly.
The analysis of the top 5 largest agglomerations in Switzerland revealed that all experienced Year on Year (YoY) growth below the inflation rate of 1.7%. Apartment prices in Zürich saw a modest increase of 1.1%, Geneva at 0.7%, and Bern at 0.6%. In contrast, Basel and Lausanne experienced declines, with Basel at -1.7% and Lausanne at -1.0%.
The trend for house prices in these urban areas was similar. Bern led the growth at 1.1%, albeit modestly, followed by Zürich at 0.1%. In Geneva, house prices slightly declined by -0.2%, with Lausanne and Basel experiencing more pronounced decreases of -1.0% and -1.3%, respectively.
However, cities like Zug, Sion, Lugano, and Biel were exceptions, witnessing price increases above 2% for both single-family homes and apartments.
At the cantonal level, the differences were even more marked. For houses, the top increases were in Graubünden with a remarkable +7.8%, followed by Ticino at +4.1%, and Zug at +3%. Conversely, Basel-Landschaft experienced the most significant decrease at -1.5%, accompanied by Obwald at -1.2% and Vaud at -0.7%.
In the apartment sector, Uri led with a notable growth of +5.2%, closely followed by Graubünden at +5%, and Glarus at +4.6%. The steepest declines were in Basel-Landschaft at -1.8%, Schaffhausen at -1.3%, and Neuchâtel at -1.0%.
The number of property transactions in Switzerland continued to fall in 2023, now -25% below the 10-year average and a significant -38% below the peak observed in 2021. This downturn in transaction activity marks a notable shift from previous years and highlights a cooling phase in the real estate market.
The substantial drop in transactions can be explained by the increased cost of borrowing. Swiss 10-year mortgage rates have tripled from sub 1% to over 3% at their peak, before stabilizing around 2% at the end of last year.
A couple buying a house would effectively have to pay twice as much rent to the bank as compared to a couple of years ago, dampening appetite for new mortgages. The economic uncertainty and expectations that prices might go down may also have played a role in buyers not taking action in 2023.
The U.S. Federal Reserve dictates the world’s economy: it sets the dollar’s monetary policy, which the European Central Bank is set to follow and then The Swiss National Bank in its turn. In 2021, to stimulate an economy that had been forcefully shut down by health authorities worldwide, the Fed took an unprecedented measure of creating more money than ever before in the history of mankind.
Amongst the many consequences, real estate prices worldwide saw record growth and inflation attained levels not seen since the end of the 80s.
Then, in the first quarter of 2022, to counter inflation in the US, the Fed started raising interest at breakneck speed, going from 0% to over 5% in 18 months, draining liquidity from the economy.
Slowly but surely, the ECB and the SNB followed, and real estate prices started cooling down, even crashing in some parts of the world.
As we enter 2024, there's a cautiously optimistic market sentiment. Inflation, showing signs of weakening by the end of 2023, concluded the year positively, easing fears of a recession. Interest rates, having likely peaked, are expected to decrease further, as suggested by the inverted yield curve. This decline could prompt central banks, including the SNB, to lower key interest rates soon, especially as the high value of the Swiss Franc poses challenges for exports. The upcoming U.S. elections might also influence economic policies, as Democrats might seek to bolster the economy to win voter favour.
The second half of 2023 already witnessed a reduction in the 10-year fixed rate, dropping from 2.7% in December 2022 to below 2% by the end of the year.
Although this decrease did not significantly impact the market last year, it is expected to provide some stimulus this year, especially for buyers who have been waiting on the sidelines. With supply remaining limited and demand expected to strengthen, property prices are likely to see a slightly higher increase than in 2023 as we approach mid-year. This environment could facilitate easier negotiations, aligning buyer and seller expectations more closely.
Transaction numbers are also expected to rise in the coming months, particularly for investment properties. Market values, seemingly reaching their lowest point, are anticipated to stabilize in 2024. As property values begin to level out, this convergence in price expectations between buyers and sellers could lead to a more active market. Overall, 2024 is shaping up to be a year when the Swiss real estate market may start to recover from its recent sluggishness.
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