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For the first time in over a year, house prices in the Eurozone have increased, with official statistics indicating that declining mortgage rates are igniting a recovery in the region’s real estate market.
House prices within the currency union rose by 1.3 percent in the second quarter compared to the same period last year, as per data released by Eurostat on Thursday. This increase follows four consecutive quarters of annual declines.
With the rise in home loan costs starting in early 2022, demand in the European property market took a significant hit. However, mortgage rates have dipped this year amidst expectations that the European Central Bank will lower interest rates. The ECB’s main deposit rate is currently at 3.5 percent following reductions made in June and September, with market observers predicting another quarter-point decrease next month.
“There’s a noticeable recovery in Eurozone house prices,” commented Tomasz Wieladek, T Rowe Price’s chief European economist, adding that “mortgage affordability has improved significantly” due to a robust labor market and a substantial increase in disposable income as energy costs decline.
Franziska Biehl, an economist at ING, noted that the recovery in the residential property sector is not only due to lower mortgage rates but also heightened salaries. Wages are increasing at a pace that outstrips inflation according to official data.
Additional data released by the ECB on Wednesday indicated that the average mortgage rate for new agreements fell to 3.7 percent in August from over 4 percent last November, compared to an average of 1.3 percent in January 2022.
The ECB initiated rate hikes in 2022 in response to soaring inflation, which drove up mortgage expenses. Nonetheless, Eurozone inflation fell to 1.8 percent in September, dipping beneath the ECB’s medium-term target of 2 percent for the first time in three years, setting the stage for potential interest rate cuts.
Relative to the previous quarter, Eurozone property values saw a rise of 1.8 percent in the three months ending in June, marking the most rapid quarterly growth in two years, as per Eurostat data. In the struggling German housing market, which has experienced seven quarters of decline, property prices rose by 1.3 percent on a quarter-to-quarter basis. However, house prices in Germany remain 12 percent below their 2022 peak, and they dropped by 2.6 percent year-on-year.
Reports of above-average annual price increases emerged from several markets, with the Netherlands, Spain, and Portugal witnessing nearly 8 percent growth in the second quarter. Additionally, Croatia, the newest member of the currency bloc, showed an annual price increase of 10 percent.
Italy also saw its house prices resume growth after lagging behind the regional average for the past five years.
Conversely, French property prices remain 4.6 percent lower than their levels a year prior.
Andrew Kenningham, an economist at Capital Economics, remarked that any further price gains would be modest, as the reductions in ECB borrowing costs have already been incorporated into mortgage rates, and the overall economic situation in the Eurozone is “poor.”
“We do not anticipate a dramatic surge in house prices,” he stated. “Germany battles with waning competitiveness, and France is entering a phase of austerity.”