An IMGW News Report
In a surprising turn of events, the European real estate market witnessed a significant downturn in 2023, marking its first decline in house prices across the continent in 10 years. The latest data from Eurostat reveals a 0.3 percent drop in residential property prices throughout the EU, with an even more pronounced decline of 1.1 percent within the eurozone.
Among the worst-hit nations, Germany experienced a staggering annual housing price drop of 8.4 percent, closely followed by Luxembourg with a 9.1 percent decrease. Finland and Sweden also grappled with declines of 5.6 percent and 5.3 percent, respectively.
“Despite raising interest rates, the ECB’s actions have only led to a modest decline in house prices, indicating significant constraints on housing supply across many countries.”
In contrast, countries such as Croatia, Bulgaria, Lithuania, Poland, and Portugal defied the trend, seeing notable surges in property prices ranging from 8 to 12 percent. Economists attribute this disparity to the stronger economic growth observed in southern and eastern European countries compared to core nations like Germany and France.
Ricardo Amaro, as reported by the Financial Times, highlights the recent underperformance of the German economy as a key factor contributing to buyer caution. Additionally, the surge in house prices during the pandemic has left the market vulnerable to correction. Amaro also underscores supply dynamics, particularly the scarcity of new construction in southern Europe, as a factor supporting the resilience of certain housing markets.
Country-specific factors further shape market trends. Croatia’s adoption of the euro in January 2023 led to increased investment, while Portugal’s housing market benefited from tax incentives for second-home purchasers and the discontinuation of “Golden Visas” for wealthy foreign buyers. Poland, buoyed by strong economic growth and interest rate cuts, also experienced significant growth in its market.
While some countries like Italy and Finland have seen relatively stable house prices over the past decade, others such as Poland, Portugal, and Lithuania have witnessed substantial increases. Greece’s housing market, according to data from the Bank of Greece, saw a robust 13.4 percent increase in residential property prices last year.
Critics of the European Central Bank (ECB) argue that its loose monetary policy pre-2022 contributed to asset price inflation, particularly in the property market. Despite raising interest rates, the ECB’s actions have only led to a modest decline in house prices, indicating significant constraints on housing supply across many countries.
Looking ahead, signs of recovery are emerging in certain markets, such as Germany, where lenders have reduced mortgage rates. This suggests that while the European real estate market may have encountered a temporary setback, underlying factors such as economic growth and supply dynamics will continue to shape its trajectory in the years ahead.