House prices in the EU rose at the fastest pace in nearly 14 years in the first three months of this year, driven by low interest rates and high household savings, despite the historic economic damage caused by the coronavirus pandemic.
House prices across the bloc rose 6.1 percent year-on-year in the first quarter, up from 5.8 percent in the previous three months and the fastest pace since the third quarter of 2007, according to data released Thursday by Eurostat.
House price growth for the eurozone was the fastest since the end of 2006 at 5.8 percent.
House prices have risen sharply in recent months in most advanced economies, including the UK and the US, as unprecedented stimulus measures taken by major central banks to combat the economic effects of the pandemic have sent a wave of liquidity to the financial sector. markets and mortgage rates have pushed up to record lows.
Ricardo Amaro, an economist at Oxford Economics, said the “solid momentum” of house prices in the EU is likely to continue through the rest of 2021, “supported by the extensive availability of excessive savings in segments of the market active in buying housing, a very favorable interest rate environment and a strong recovery in broader economic conditions from [the second quarter] further.”
According to separate data from the European Central Bank, average mortgage rates across the eurozone fell below 1.6 percent in the first five months of the year, the lowest ever since a peak of 5.7 percent in 2008. This doesn’t just mean that more people can afford a mortgage, but also that buying is cheaper than renting, which contributes to an increase in the number of buyers.
Despite the economic disruption, many households’ finances have remained relatively healthy during the pandemic, thanks to government support measures to keep people in work and a decline in consumer spending during lockdowns, pushing up the savings rate.
The increase in working from home has also fueled the demand for housing and has led to a wave of relocations as people seek more housing.
Jessica Hinds, an economist at Capital Economics, said the rising prices are a reflection of the ECB’s “very expansive monetary policy, government support for jobs that has largely protected jobs and incomes, and the imposition of moratoria on mortgage payments.”
However, she added that the trend did not resemble a housing bubble. “Valuations don’t seem hugely stretched and housing investment doesn’t look rosy,” she said.
Germany reported the fastest price increase of the EU’s major economies at 9.4 percent; countries such as Denmark, the Czech Republic and the Netherlands recorded double-digit annual price growth.
By contrast, property price growth in Spain slowed to 0.9 percent, down from a ten-year high of 7 percent in the third quarter of 2018.
The figures were released just hours before the ECB announced the results of its first strategy review in nearly two decades, which is expected to discuss the economic impact of housing costs and a range of other issues.