Housing affordability in CEE

On the radar

• Industrial production in Slovenia grew by 2.1% y/y in September while in Slovakia it declined by -1.6% y/y.
• Inflation in Czechia arrived at 2.4% y/y while in Hungary it landed at 2% y/y in October.
• Today, in Croatia producer prices will be published.

Economic developments

The standardized house price-to-income ratio shows whether the ratio of the house price index to household income is above or below its long-term average (set at 100). In the EU27, the ratio shows two clear peaks: in 2007, ahead of the global financial crisis, and in 2022. In the CEE region, there was also a sharp spike in 2007, when the ratio exceeded 140, largely driven by developments in Romania (where the ratio reached 270) and Poland (154). Subsequently, the ratio declined significantly, falling below 100 in 2012 and reaching a low of around 95. The CEE ratio has remained below its long-term average for more than a decade. Within CEE7, Romania is a clear outlier, with a ratio below 50 in recent years, while in other countries it is close to or even slightly above its long-term average (Czechia, Hungary and Slovenia).

Market movements

Oil prices continue to fall in response to US President Donald Trump's plans to hold off on new military strikes against Iran and the announcement that the US will stop providing financial support to Israel after year-end. Brent crude oil is trading below USD 90 per barrel. Other global developments include a stronger-than-expected increase in US consumer prices in October, leaving the Federal Reserve on course to raise interest rates in December. Recent comments from ECB officials Philip Lane, Joachim Nagel and Martins Kazaks suggest that another 25bp rate hike in December is highly likely, as inflation remains well above the 2% target and has yet to peak. While further monetary tightening appears warranted to contain inflationary pressures and prevent inflation expectations from becoming unanchored, the trade-off between inflation and economic growth is becoming more challenging. Turning to local central banks, in Czechia Sklenář urged greater policy caution after October's headline inflation slightly exceeded the 2.3% forecast, although core inflation came in at 3.1%, compared with the expected 3.2%. Headline inflation is expected to rise well above 3% in early 2027, peaking in February. On Thursday, central banks in Romania and Serbia will announce their interest rate decisions, and we expect both to leave rates unchanged.

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