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House prices in the EU have recorded their first annual fall in almost a decade, despite a slight recovery in the three months to June.
The EU residential property market rebounded over the second quarter, when house prices rose 0.3 per cent despite rising interest rates, high inflation and weakening economic growth.
However, house prices in the 27-country bloc had fallen in the previous two quarters, as soaring mortgage rates and the rising cost of living deterred many Europeans from buying a house.
This led to a 1.1 per cent fall in EU house prices from a year earlier and a 1.7 per cent drop in the eurozone — the first annual declines since 2014.
After the European Central Bank increased its policy rates by an unprecedented 4.5 percentage points since last year, banks have increased their mortgage rates and tightened their lending criteria to put an end to almost a decade of rising house prices in the region.
EU house prices had risen on average by 50 per cent since 2015 before they started to fall last year, driven up by years of negative interest rates and bond purchases by the ECB, which drove mortgage rates down close to zero in many countries.
Since then, falling house prices have combined with a sharp increase in the cost of building materials and labour to put a chill through the construction sector in some countries, such as Germany, which have been hit by cancelled projects and insolvencies by developers.
The biggest annual falls in house prices were 9.9 per cent in Germany, 7.6 per cent in Denmark and 6.8 per cent in Sweden. The biggest increases were 13.7 per cent in Croatia, 10.7 per cent in Bulgaria and 9.4 per cent in Lithuania.
Luis de Guindos, vice-president of the ECB, told the Financial Times in a recent interview that it was “not a total surprise” to see German house prices fall almost 10 per cent in the past year. “That’s a clear indication that there were some pockets of overvaluation that are going to be corrected.”
He said commercial property was the ECB’s “main source of concern in terms of financial stability”. But he added “we also need to pay attention to residential property” even though it appeared to be “more resilient”.
Source: Economy - ft.com
