House prices in the European Union have declined for the first time since 2015 due to rising borrowing costs, causing a slowdown in the residential property market. According to Eurostat, house prices dropped by 1.5% in the final quarter of 2022, with the largest declines occurring in Denmark and Germany. The decline is expected to continue as interest rates rise, leading to a drop in demand for mortgages and downward pressure on property prices. Analysts are predicting a further deterioration in the coming quarters.
The EU property market has seen a decline in house prices, marking the first quarterly fall since 2015. Eurostat reported that house prices fell by 1.5% in the final quarter of 2022, with the biggest declines in Denmark and Germany where house prices fell 6.5% and 5% respectively. The drop in demand for mortgages, higher interest rates, and the soaring cost of living have led to a sharp decrease in the demand for residential properties. The decline in the EU property market has continued into the opening months of 2023, with Dutch house prices falling by 1.5% between January and February.
Despite some bright spots, such as Croatia, where rising demand from foreign buyers ahead of the country's introduction of the euro drove house prices up by 4.7% in the final quarter of 2022, the surge in house prices over the past decade has gone into reverse in much of the EU. Experts predict a further deterioration in house price momentum in the coming quarters, owing to the lack of investment from the construction sector which would have otherwise stabilized prices by limiting supply.
The European Central Bank (ECB) raised its deposit rate by half a percentage point to 3%, taking borrowing costs in the eurozone to their highest since the 2008 financial crisis, and some policymakers predict another rise in May. Banks have tightened credit conditions in response, and analysts say they could retreat further after the turmoil of the past month in the sector. Sweden's housing market suffered one of the biggest falls in Europe, with prices falling by 15% in the past year, while the UK also suffered a sharp downturn, with house prices falling by 0.8% between February and March.
The decline in the EU property market is due to multiple factors such as rising borrowing costs, higher interest rates, and the soaring cost of living, which have deterred many Europeans from buying a house. The aftereffects of the global turmoil in the financial sector, triggered by the collapse of Silicon Valley Bank in the US and the forced sale of Credit Suisse to its rival, UBS, has further hindered growth in the sector. The future too appears to be bleak at the moment.
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