Eurozone house prices rising rapidly
House prices across the European Union (EU) have fluctuated quite noticeably since at least 2006 and in particular since the 2008 banking crisis. That year saw an average fall of 4% across the continent according to Eurostat – however it looks like things are finally fully bouncing back.
As reported in the Financial Times, house prices in the Eurozone are rising at the fastest level for a decade and it has now reached the point where the region’s banks are tightening the supply of credit to people looking for a mortgage to try and combat this trend.
To illustrate why the banks are worried, the first quarter of 2017 saw an average rise of 4.5% across the Eurozone, with five countries – Latvia, Slovenia, Portugal, Slovakia and Ireland – seeing double digit rises. The last time this happened was in 2007 just before it all went wrong.
In Ireland, where prices were up 12.3% over that period the central bank has imposed a strict cap on the amount of money banks can loan to individuals when compared to their income. Likewise, the central bank in Portugal has imposed caps on the amount people can borrow compared their income and deposit this month following price rises of 12.2%.
Another factor influencing regional banks is the widespread belief that the European Central Bank (ECB) will keep its benchmark interest rate at zero for another year. Already a record low, this near-certainty has understandably made banks warier than they otherwise might have been. The ECB insists that the rapid rise in house prices is not a threat to the wider Eurozone, but you cannot blame banks for their caution given what careless lending led to in 2008.
It is unclear what will happen going forward, but with the population of the EU up to over 513,000,000 as of January 2018 it is clear that pressure on the housing market will continue. Homes are not being built fast enough and it is tough to see how this ends. A few more quarters showing rises like this and the ECB may be forced to step in whether it wants to or not.