With the war in Ukraine dominating Russia’s economy, a once-lively mortgage market has largely ground to a halt, paralyzed by soaring interest rates and a sharp curtailment of state subsidies for first-time buyers. The result: For many Russians, the dream of homeownership is now an unreachable luxury.
More than 18 months into the Russian central bank’s spree of interest-rate hikes aimed at taming accelerating inflation triggered by massive government spending on the war, market rates for home loans now hover around an eye-watering 29 percent, with a minimum down payment of 30 percent.
That has brought a hot market for new homes to a screeching halt.
“It has never been so bad from the point of view of what a normal person can afford to buy, taking into account the mortgage and all subsidies," Mikhail Matovnikov, head of the analytical department at state-owned Sberbank, the nation’s largest lender, said in November. Affordability hit “absolute rock bottom,” he said.
The high hurdles for prospective homeowners are a potential headache for President Vladimir Putin, who frequently tells Russians the economy is in good shape and wants to ensure that persistent problems like rising prices don’t undermine support for his rule and for the war.
Mortgage volumes plummeted 40 percent in 2024, data published last week showed, and experts say they could fall a further 20 percent this year. As of September, only 13 percent of Russians could afford to borrow at market mortgage rates, and that was before the bank raised the key rate by another 2 percentage points.
“With such rates, of course there are few transactions. People who do have cash are running around, bargaining like crazy” as sellers have few options, Olga, a realtor in the western city of Voronezh, less than 200 kilometers from the Ukrainian border, told RFE/RL. She did not want her last name published.
Boom And Bust
Russia’s housing market boomed through 2023 and into 2024 as consumers burned through cash from the war-fueled economy and took advantage of a broad government program to support new housing construction.
The subsidized mortgage program, introduced in April 2020 to stave off the collapse of developers during the coronavirus pandemic, allowed buyers of new homes to borrow at a maximum rate of 8 percent, historically low by Russian standards.
The surge in demand for new homes, along with galloping inflation for everything from labor to construction material, caused the average price of new builds to nearly double between 2020 and 2023, outpacing price increases for existing homes and warping the market.
By the end of 2023, new homes were 40 percent more expensive than similar homes on the secondary market. The premium had been just 10 percent a few years earlier.
As the government prepared to end the broad subsidized housing program in July 2024 -- maintaining only subsidies geared to groups like families with young children, residents of Arctic regions, or IT specialists –--people rushed to snap up homes before it was too late.
Russian banks issued more than 131,000 subsidized loans in June, totaling 690 billion rubles ($7 billion). Both figures represented records. Subsidized loans accounted for 80 percent of all home loans that month, also a record.
With buyers now facing double-digit mortgage rates, new home demand immediately plummeted across the country the following month. In the region that surrounds Moscow, one of the most active areas for new home construction, sales fell by 50 percent month over month.
Onward And Upward?
Market conditions only worsened as the central bank hiked rates by another 5 percentage points between July and October, to 21 percent, seeking to subdue inflation triggered by defense spending and prompting banks to up their market home loan rates to 29 percent.
As a result, the volume of mortgages issued last year decreased by nearly 40 percent, to $50 billion. Experts forecast mortgage volumes to decline more than 20 percent this year to between $41 billion and $36 billion.
That has rattled home builders. Shares of Samolyet, one of Russia’s largest residential developers, plunged as much as 75 percent last year on the Moscow stock exchange amid rumors that the company was running into financial problems as sales dropped.
But builders were reluctant to cut prices and start a price war, Maria, a realtor in Krasnoyarsk, told RFE/RL in November.
“Developers are trying to maintain the market, so they are in no hurry to lower [advertised] prices. They are looking for other ways to stimulate demand: for example, by offering a personal discount or an installment plan,” she said.
Deputy Prime Minister Marat Khusnullin promised in November that the state would “do everything to prevent developers from going bankrupt.”
Home-builder bankruptcies in the past have triggered localized protests by buyers stuck with unfinished apartments, in some cases after spending their life savings on down payments. With the war on Ukraine raging, Russian casualties mounting, and economic troubles increasing, the Kremlin is focused on stemming any discontent, experts say.
However, Khusnullin said that Russia would not reinstate the broad subsidized home loan program, calling it a burden for the budget in her November statement. Russia expects its fourth consecutive budget deficit this year as it ramps up spending on the war.
That continued massive military spending may end up pushing mortgage rates over 30 percent, particularly if the central bank resumes interest rate hikes in its struggle to curb inflation, a move some analysts are anticipating.
“Inflation is out of control and we think the bias will remain towards further monetary tightening” -- meaning further rate increases -- “in the coming months,” Liam Peach, senior emerging markets economist at London-based advisory firm Capital Economics, wrote on January 15.
