A recent rise in eurozone property prices appears sustainable, but the recovery is weaker than in past cycles and the eventual normalization of interest rates poses some risks, the European Central Bank said Tuesday.
House prices fell sharply across the eurozone in 2009, then dipped again in 2012 and 2013, RTE reported.
They unwound imbalances that had built up before the financial crisis which put the current recovery on a more solid footing, the ECB said in an economic bulletin.
House prices have risen since the second half of 2014 and the growth is sustainable as a mismatch between incomes and property prices has been corrected, the ECB said in a paper.
The study is part of a broader economic update, due to be published on Thursday.
“The recovery in the eurozone house prices appears to be relatively broad-based across groups of countries,” the ECB said.
“However, it seems that the current recovery is weaker than the typical increase observed historically during the initial phase of an upturn in house prices after a trough,” it added.
Low rates will help the recovery but the boost to housing affordability as interest rates, now at their lower bound, normalize, the ECB said.
“The current recovery in eurozone house price growth seems less contingent on prices in metropolitan areas than in 2009-10.”
The ECB added that risks to financial stability from the rising prices appear limited for now. Credit growth is subdued and countries have implemented brakes on “potential house price and credit exuberance”, it added.
Some observers caution against setting too much store by pan-European figures. “I am sceptical of attempts to aggregate house price data because there is no such thing as a European real estate market,” said Christian Hilber, a housing expert at the London School of Economics.
“Real estate markets are inherently local. Even within individual states there are big differences driven by local demand and supply conditions.”
However, in a number of countries the upturn in house prices is already occupying regulators desperate to avoid a repeat of the spectacular property boom that culminated in the financial crisis.
Eurozone member states including Ireland, the Netherlands and Estonia have already imposed or adjusted loan-to-value caps for local borrowers, in an effort to prevent consumers from overstretching themselves. Other countries, such as Belgium, have increased the amount of capital banks must hold against certain types of loans in a bid to dissuade them from risky lending.
