Real estate prices will continue to rise in Europe, according to S&P Global report
House prices in Europe are rising at the fastest rate since 2006, said S&P Global, as the residential real estate market recovers from the pandemic faster than other sectors of the economy. The report also says that even though inflation has peaked, it is here to stay.
Prices increased by 6.9% on average in Europe in the second quarter of 2021, compared to the same quarter last year.
In most markets, strong demand has pushed trading volumes above pre-pandemic levels. Home purchase loans are more dynamic than in 2019 and construction activity is close to full capacity
With the supply of new homes unable to keep pace with structural demand, S&P expects housing costs to continue rising over the next four years.
One of the main reasons for this increase is that people have been accumulating savings during the pandemic due to lockdowns and restrictions on exits. With more savings set aside, households were able to deposit larger deposits.
S&P estimated that in the six quarters between Q1 2020 and Q2 2021, households accumulated nearly 6% of 2019 GDP in excess savings in the eurozone and 9.4% in the UK
In addition, falling borrowing costs have contributed to the rise in house prices, as central banks eased monetary policy in response to the pandemic. Interest rates fell to a new all-time low of 1.32% for new mortgage loans in the eurozone in August.
While there is a growing demand for real estate, there are also more acute supply constraints, after construction activity was put on hold at the start of the pandemic.
In some cases, prices of low-income households are excluded from the market, putting increased pressure on governments to expand social housing developments, a general trend that has been accentuated due to the deterioration of the market. affordability.
Read more: UK house prices could rise as fewer properties hit the market
Looking ahead, S&P said that as savings are absorbed and central banks begin to tighten policy, house price inflation should start to moderate to different degrees depending on specific factors. in the country.
S&P expects house price inflation to peak in mid-2021 in most countries, as two of the main drivers of demand for real estate activity – higher savings and relaxed monetary policy – should fade.
“In our opinion, the effect of this will outweigh the third factor in housing prices, limited supply,” the report said.
The report also says that in the UK, the end of the temporary stamp duty exemption at the end of September is now contributing to a significant slowdown in price growth.
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