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House prices in the EU have recorded their first annual fall in nearly a decade, despite a slight recovery in the three months to June.
The EU residential property market rebounded during the second quarter, with a 0.3% increase in house prices, despite rising interest rates, high inflation, and weakening economic growth.
However, the 27-country bloc experienced house price declines in the previous two quarters due to soaring mortgage rates and increasing living costs, discouraging many Europeans from buying houses.
This resulted in a 1.1% decline in EU house prices compared to the previous year, and a 1.7% drop in the eurozone, marking the first annual declines since 2014.
Following an unprecedented 4.5 percentage points increase in policy rates by the European Central Bank (ECB) since last year, banks have raised mortgage rates and tightened lending criteria to end nearly a decade of rising house prices in the region.
Before the decline, EU house prices had seen an average increase of 50% since 2015, driven by years of negative interest rates and bond purchases by the ECB, which pushed mortgage rates close to zero in many countries.
Since then, falling house prices have combined with a significant rise in building material and labor costs, impacting the construction sector in countries like Germany, which has experienced canceled projects and developer bankruptcies.
The largest annual house price declines were observed in Germany (-9.9%), Denmark (-7.6%), and Sweden (-6.8%). On the other hand, Croatia (13.7%), Bulgaria (10.7%), and Lithuania (9.4%) saw the highest increases.
In a recent interview with the Financial Times, Luis de Guindos, the vice-president of the ECB, stated that the nearly 10% decline in German house prices over the past year was “not a total surprise” and indicated correction of overvalued areas. He also expressed concern about commercial property’s impact on financial stability and highlighted the need to monitor residential property, which appeared to be more resilient.
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