How will low rates af­fect the hous­ing mar­ket?

Dünya Executive - - COMMENTARY - Alaat­tin AKTAS Econ­o­mist

There is a question that we fre­quently come across af­ter the state banks have low­ered the home loan in­ter­est to 0.99 per­cent monthly. The question is whether this in­ter­est rate cut will in­crease de­mand for homes and there­fore whether hous­ing prices will in­crease.

In our opin­ion, there will be no in­crease, because this credit in­ter­est seems low for the cur­rent pe­riod but is still high in the long term. Let us not for­get that the Cen­tral Bank’s 2020 inflation fore­cast is sin­gle-digit, although it is un­likely to achieve it. CPI is es­ti­mated to be 8.2 per­cent in 2020. And again, let’s not for­get, the ul­ti­mate goal for Turkey’s inflation is 5 per­cent. If inflation falls to sin­gle dig­its and stays

there af­ter a few years, can we say that a 12 per­cent mort­gage loan an­nu­ally is ad­van­ta­geous?

More­over, although the ex­act num­ber is not known, the hous­ing stock is es­ti­mated to be over a mil­lion. And there are hun­dreds of thou­sands of house­holds that can­not af­ford to buy hous­ing even with in­ter­est-free loans, not 0.99 per­cent. There are peo­ple who have stopped dream­ing about home own­er­ship. The num­ber of ap­pli­cants to three state banks in two days was 13,000. If this fig­ure was 113,000, for ex­am­ple, we could talk about a big de­mand. There­fore, sell­ers in the hous­ing mar­ket will be reluc­tant for a while against this credit fa­cil­ity. We can see that. But this at­ti­tude will change in a very short pe­riod of time.

Aver­age in­ter­est will drop slightly

The ex­tent to which the monthly mort­gage loan rate of 0.99 per­cent ini­ti­ated by public banks will be­come wide­spread is dif­fi­cult to pre­dict, but this prac­tice will definitely lower the aver­age mort­gage in­ter­est rate. There is al­ready a gen­eral fall in in­ter­est rates; this move by public banks will also sup­port the de­cline.

The trend is clear: the de­cline in de­posit and loan rates, which be­gan in July, will con­tinue and ac­cel­er­ate. This de­cline is not at­trib­ut­able to a sin­gle fac­tor. There are many rea­sons for it, but the main rea­son ob­vi­ous: an­nual inflation is in de­cline and will fur­ther de­cline.

As­so­ci­at­ing this de­cline in the an­nual rate with the Cen­tral Bank’s in­ter­est rate cut would be over­sim­pli­fy­ing. We have al­ways stressed that inflation would come down due to the base effect, and it is com­ing down. Is it pos­si­ble that banks haven’t no­ticed? Of course they knew that the an­nual CPI in­crease would eventually de­cline and be­gan po­si­tion­ing them­selves ac­cord­ingly by pre­dict­ing in­ter­est rate cuts in July.

The re­place­ment of the Cen­tral Bank gover­nor and the fact that the pol­icy rate was low­ered more than expected un­doubt­edly en­cour­aged the banks to lower their rates. It would not have been wise to ap­ply high in­ter­est rates on de­posits while pro­vid­ing short-term and low-cost fund­ing from the Cen­tral Bank.

Look­ing at the sit­u­a­tion at the end of each month for the first six months, only one-year and longert­erm de­posit in­ter­est rates rose in the week of July 12-19. How­ever, this in­crease was also very low.

The ra­tio of all banks in de­posits and the aver­age of all de­posits has de­creased to 20.09 per­cent as of July 26. In ad­di­tion, all ma­tu­ri­ties, ex­cept for de­posits up to three months, are below the 20 per­cent thresh­old. The Cen­tral Bank an­nounce­ment on Au­gust 2 will clar­ify the pic­ture, and we will prob­a­bly see less than 20 per­cent for all ma­tu­ri­ties on that date.

Long-term ma­tu­ri­ties will be profitable

When in­ter­est rates be­gan to de­cline, we had a suggestion for sav­ings holders. We sug­gested that those who do not re­ceive a re­turn on their sav­ings on a monthly ba­sis should go for six-month on an­nual term. Because af­ter a pe­riod of time, when the ma­tu­rity date ar­rived, they would have to set­tle for lower rates. Indeed, it hap­pened and this trend will con­tinue. How­ever, for ex­am­ple, a rel­a­tively high in­ter­est rate could be guar­an­teed with a six-month ma­tu­rity. We don’t know if any­body tried this, but it’s ob­vi­ous that those who did are prof­ited.

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