In the early 1980s, the Swiss National Bank (SNB) loosened monetary policy, and the state stimulated the construction industry with stimulus programs. The housing market is booming.
In 1987 the boom reached a new dimension when the New York Stock Exchange crashed. Central banks around the world are opening their money floodgates. Shares are out – now everyone wants houses. Swiss real estate prices are skyrocketing.
Rising interest rates caused house prices to fall
The banks grant credit after credit because they are convinced: there is no risk, interest rates will not rise. In the summer of 1989, the President of the National Bank, Markus Lusser, announced: “For the time being, real estate prices cannot fall into the abyss.”
In the same year, Lusser himself ensures that exactly that happens: the SNB raises interest rates. The panic reaction is poison for the overheated housing market. Demand collapses and prices plummet.
Homeowners are being crushed by the interest burden, and investment properties are becoming deserted. The debt collection offices are overwhelmed with the forced administrations. And the banks are drowning in bad loans: by 1996 they have written off a total of 42 billion Swiss francs.
Real estate crash tore the whole economy into the abyss
The big banks, which are bleeding themselves, have to take over dozens of regional banks to save them from going under. The savings and lending bank in Thun is not saved. In October 1991, distraught customers stormed their bank in vain: the counters remained closed. The images of the drama go around the world.
The real estate crash tears down the entire economy. A severe recession breaks out. In 1997 the SNB prints fresh money and the economy slowly picks up speed again. Switzerland has survived the worst.
House prices have doubled since 1998
In 1998 house prices rose again for the first time. And they keep rising, fueled by falling interest rates, which even turned negative after the 2008 financial crisis. The real estate market is booming – even during the pandemic: the demand for living space is increasing even more. In 2021, house prices will rise by another six percent. They have doubled since 1998.
Today, a ten-year-old house with 140 square meters costs 1.5 million francs in Bern, almost two million in Lausanne, 2.5 million in Zurich and three million in Geneva. Anyone who wants the used house in Rhonestadt must have more than half a million francs of their own funds and the salary of a federal councillor: 450,000 francs.
Inflation is rising
The boom lasted 24 years – now it is ending. The war in Ukraine is tearing apart supply chains and driving up energy prices. As a result, inflation in the US and Europe is already over eight percent. In Switzerland it is almost three percent. And there is no end in sight to the flagpole.
The US Federal Reserve therefore raised interest rates by 0.5 percent in May, the highest rate since 2000. Now the European Central Bank is following suit. In July it will raise interest rates by 0.25 percent – for the first time in eleven years. This makes it clear that the SNB cannot avoid raising interest rates either.
Mortgage providers have already reacted. A year ago, a ten-year fixed-rate mortgage cost one percent. In April 2022 it was two percent. Today, the offer published by Credit Suisse on the Internet is 2.84 percent, while Raiffeisen is offering 2.9 percent. In addition, construction and renovation will be up to eight percent more expensive this year, and heating with fossil fuels will cost 40 percent more. In other words: the cost of use increases – the value of the houses falls. In the first quarter of 2022, the price curve has already flattened out.
The real estate market is about to change
“This is a turning point for the real estate market,” says Donato Scognamiglio (52), head of the real estate consulting firm IAZI. “Then an avalanche thundered down into the valley. It brakes when it reaches the turf. But if you don’t brake, you’ll slide down.”
The SNB assumes that real estate is overvalued by up to 30 percent. It just doesn’t seem to bother anyone. “It’s like being on the Titanic,” says Scognamiglio. «The champagne corks pop until the end.» Since 1998, the industry has only known the upward trend. “She made a fool of herself during this time. Most of them have never experienced that the interest rate can be as high as seven percent and property values can fall.”
In fact, if you ask around in the market, you won’t notice any panic. Isn’t there an iceberg? “The industry didn’t expect inflation and rising interest rates either,” says Scognamiglio. “And yet both are now a reality.” Risk assessment is nowhere more important than in the real estate market. Scognamiglio: «In the financial world there are various ways to hedge against price corrections. But in the real estate sector there is no such lightning rod.»
Renting cheaper than owning
Zürcher Kantonalbank and Credit Suisse recently announced that renting is cheaper than owning. In the last ten years they have said the opposite. “It’s a strong signal,” emphasizes real estate expert Andreas Loepfe (57) from the University of Zurich. “The heating phenomena are already slowing down. The cooling is coming.”
It is a historic moment, says Loepfe: “This marks the end of the phase that began in the 1990s. 2022 marks the end of the principle of hope. The next decade looks fundamentally different than the last.”