EU housing market boom ends with first quarterly price fall since 2015

House prices in the EU have suffered their first quarterly fall since 2015, as rising borrowing costs bring an end to an almost decade-long boom in residential property markets.

Eurostat, the EU’s statistics office, said on Tuesday that house prices dropped 1.5 per cent in the final three months of 2022 after declines in 15 of the bloc’s 27 member countries. The biggest declines were in Denmark and Germany, where house prices fell 6.5 per cent and 5 per cent respectively.

Higher interest rates and the soaring cost of living are deterring many Europeans from buying a house, leading to a sharp drop in demand for mortgages, which is putting downward pressure on property prices.

More recent data published by individual countries indicate the decline is likely to have continued during the opening months of this year. Dutch house prices fell 1.5 per cent between January and February, according to figures from the national statistics agency CBS last month.

There were some bright spots, such as Croatia, where rising demand from foreign buyers ahead of the country’s introduction of the euro in January drove house prices up by 4.7 per cent in the final quarter of last year. 

But the surge in house prices witnessed over the past decade has now gone into reverse in much of the EU.

While prices remain more than 50 per cent higher than in early 2014, a series of interest rate rises by the European Central Bank and other rate-setters are expected to continue to affect the market.

“We expect a further deterioration in house price momentum in the coming quarters,” said Anja Heimann, an economist at S&P Global Market Intelligence, adding that a lack of investment from the construction sector would eventually stabilise prices by limiting supply.

The ECB last month raised its deposit rate by half a percentage point to 3 per cent, taking borrowing costs in the eurozone to their highest level since the 2008 financial crisis and some policymakers have said another rise is likely in May.

Banks have tightened credit conditions in response and analysts think they could retreat further after the turmoil of the past month in the sector, triggered by the collapse of Silicon Valley Bank in the US and the forced sale of Credit Suisse by its rival UBS.

“We are likely to see a further increase in banks’ cost of funding, a tightening of credit standards and a deceleration in the growth of lending volumes,” Luis de Guindos, vice-president of the ECB, said in a speech at the weekend.

Total lending by banks to eurozone customers fell for the third consecutive month in February, taking the total three-month decline to €72bn and ending nearly five years of consistent growth, according to figures published by the ECB last week.

Sweden’s housing market suffered one of the biggest falls in Europe with prices falling 15 per cent over the past year. This decline continued after Swedish house prices fell 0.8 per cent between February and March, according to data from mortgage lender SBAB Bank on Monday.

The UK has also suffered a sharp downturn in its housing market, where prices fell 0.8 per cent between February and March, according to data released by mortgage provider Nationwide last week. That continued an uninterrupted decline in UK house prices since last summer and led to a year-on-year drop of 3.1 per cent, the biggest since 2009.