Housing demand in Europe is expected to remain high and price corrections in the residential market are expected to be nominal, according to S&P forecasts.
According to S&P, the increase in home loan rates will be the main cause of the weakening of demand and consequent fall in prices. Still, looking ahead to the coming months, they expect potential demand and housing needs in Europe to remain high.
Earlier this year, according to the rating agency and reported by idealista, house prices performed better than forecasts, but the housing boom caused by the pandemic in Europe is now over, and nominal price growth has entered a correction phase.
Factors that support house prices
Several factors will contribute to preventing a sharp drop in house prices in Europe. These include the lagged effect of interest rate hikes on household finances, continued strength in the labour market, improvements in households’ real income and the considerable savings accumulated during the pandemic. Structural factors that should help to contain the decline in prices also include the chronic shortage of housing and the decrease in family size due to the aging of the population. Finally, banks remain willing and able to lend, albeit at significantly higher costs.
How much will house prices drop in 2023-2024?
By the end of this year, house prices in Europe will have registered year-on-year declines. In most regions, these declines will continue until 2024. A decline of 12% is forecast for Germany and the United Kingdom, 11% for Sweden, 10% for Ireland and around 8% for Portugal and The Netherlands.
There are some exceptions. In Italy, government incentives to improve energy efficiency led to a strong recovery in demand at the beginning of this year, which will gradually disappear until mid-2025. As a result, the correction in Italy will come with a delay and will be less pronounced.
In Switzerland, the interest rate environment remains favourable, with little excess inflation to contend with for the Swiss National Bank – 2.2% in Switzerland versus 6.1% in the Eurozone and 7.9% in the UK currently. Switzerland is the only country in the sample that is likely to avoid direct price declines, although they still expect a significant slowdown in house price growth this year and next.
In the case of Spain, the rating agency estimated at the beginning of the year a drop in house prices of 2.5% this year and 1% the following year, while for 2025 it projected a slight recovery of 1.5%.
Source: ThePortugalNews