Prague Property Market

There is a lot of talk and even more speculation these days about housing in the Czech Republic. People from all over the world are predicting horrors in the housing markets throughout the world thanks to the boom in the market in Prague. What the market of Prague property is doing right now is going through a price bubble. If you are not sure what this means, it is basically that when the price of an asset has grown so much that it has completely outshone the asset's value, usually on the speculation that prices will continue to increase driving prices higher until they reach certain level that cannot be sustained and eventually collapses.

Of course, it is important to state that these bubbles typically do not pop like a balloon; they don't even crash like stock markets. Actually, these housing bubbles actually seem to just leak like a water faucet painfully slowly. Traditionally the market adjustment to a collapse in real estate has come from the side of quantity and not price; fewer houses are sold and this is why price reductions tend to come gradually. This doesn't mean that housing bubbles can't exist or that the bust is any less painful, it just isn’t as obvious.

Prague isn’t having a bubble. Home prices remain relatively affordable. Even though the prices for the homes have grown, the affordability of housing is the link between incomes and home costs and stays in check, and this is due to historically low mortgage rates and the fact that for several years, incomes grew a bit faster than home, so everyone saved money. Home prices remain within the reach of many with a little savings and who want to be a home owner.

Housing inventories stay pretty low. One key sign of a housing bubble would be unsold homes on the market as speculative production outlived the demand and affordability of the places. This has not happened yet and isn’t really expected to any time soon. Demand for these homes continues to grow because of the strong demand that is prodded on by growth in new household formations, the steady growth in disposable income, and the new mortgage products that are being offered by area lenders. In the meanwhile, the supply of homes is held in check.

Prague market property bubbles are actually very hard to create. The housing market here has not experienced the "boom-bust" cycle in prices which have been seen in mature housing markets such as the United States or as many have experienced in the securities and commodities markets. Indeed, home prices have not really declined as some might suggest.

While home prices in some of the areas of Prague’s property market have been a little pricier on occasion, that is mostly because of volatility in that particular area but not necessarily because of a price bubble. It is hard to generate bubble conditions in the housing market. Transaction costs and the process alone generally prevent the type of speculative housing demand in the Prague property market that leads to bubbles. There continues to be an amazing amount of interest in the residential real estate markets of central and eastern Europe; particularly in Prague. This is not just for local buyers either. Many other countries are sending new and fresh buyers to prague’s property market.