Eurozone Housing Market: A Mixed Picture of Growth and Vulnerabilities
Eurozone Property Prices Continue to Climb, Yet No Bubble Signals from the European Central Bank
The Eurozone housing market is experiencing its best run since the global financial crisis, with house prices rising by 3% in the second quarter of the year, up from 2.7% in the previous quarter. However, the recovery is still at an early stage, according to the European Central Bank (ECB), and there are indications of vulnerabilities in several countries.
Rising Mortgage Rates and Economic Uncertainty
Rising mortgage rates, driven by higher interest rates, could lead to decreased demand and potentially slower price growth or even price drops in some markets. Global economic uncertainty, including trade wars and geopolitical tensions, can also affect housing markets by reducing demand and investment.
In many European countries, such as Spain and Ireland, supply constraints continue to drive up prices, even as economic growth slows. This supply and demand imbalance could potentially contribute to unsustainable price increases.
Countries Experiencing Above-Average House Price Growth
Spain's housing market is expected to see price increases, albeit at a slower pace than in previous years, with a projected 5% rise in 2025. Ireland's residential property market is experiencing significant growth, with a year-on-year increase of 7.94% as of May 2025. This growth is supported by government initiatives and expanding housing supply.
Potential Bubble Risk Countries
However, the risk of asset price bubbles forming in the Eurozone housing market is a concern. According to UBS, nine wealthy countries in Western Europe are at risk of housing price falls due to potential 'bubble bursts,' though specific countries are not detailed in the current search results.
Countries Not Participating in the Upturn
Some countries, such as Italy, Greece, and Cyprus, are not participating in the current housing market upturn. The ECB has acknowledged the possibility of excessive valuations and corresponding vulnerabilities in the housing market. This excessive borrowing could potentially inflate asset price bubbles, which could undermine the bloc's financial stability.
ECB's Concerns and Historical Data
The average duration of major housing market upturns in historical data is close to nine years. Countries experiencing above-average house price growth since 2014 include Ireland, Germany, Austria, Estonia, Luxembourg, and Portugal. The ECB's concern about artificially low borrowing costs encouraging excessive borrowing and potential asset price bubbles remains.
The European Central Bank (ECB) stated that average housing prices are in line with fundamentals, with no sign of a bubble like the one seen in 2007. However, the ECB has kept interest rates deep in negative territory, which has raised concerns about artificially low borrowing costs encouraging firms and households to borrow excessively.
The current housing market recovery in the Eurozone has lasted for just over two years. As the market continues to evolve, it will be important for policymakers to monitor trends and take steps to mitigate potential risks to financial stability.
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