Research Briefing | Jul 10, 2023

Mild Eurozone house price correction call still faces downside risks

We expect eurozone house prices will continue to slide through 2023 following back-to-back declines in Q1 2023 and Q4 2022. Moreover, while the cumulative 2.5% decline to Q1 was driven primarily by Germany, we think price falls will become broader. Marginal price growth is expected in 2024, with a larger pickup in 2025.

What you will learn:

  • Our baseline is subject to downside risks. Mortgage lending has stalled in recent months and forward-looking indicators signal pain ahead. Our modelling also suggests that the pass-through of monetary policy to house prices might be more prolonged than we assume in our baseline. Despite some improvement, key valuation metrics remain stretched.
  • Pockets of deep stress is another risk as granular analysis points to sharp vulnerability in some countries. Our dashboard suggests risks are greatest in a range of midsize countries, such as Slovakia, Austria, Finland, and Portugal, but Germany is also vulnerable to further price drops.
  • At the other end, we see little upside risks to house prices in the coming years. But we think that some of the tailwinds that have so far shielded house prices, such as resilience in the labour market, constrained housing supply, and now improving real incomes are likely to remain in place, underpinning our baseline forecast for only a mild decline.
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