During 2023 and 2024, there will be a noticeable price correction in the housing market in all European countries. Inflation, rising interest rates, the economic and international political crisis, falling incomes of the population, problems in the labor market, energy markets, building materials and much more — all this will gradually contribute to the overall movement of markets.
However, according to experts at S&P Global Ratings, a collapse in the market should not be expected. The weakest countries in terms of prices, those in which they will fall the most in the coming years, are Portugal (-4.4%), Great Britain (-3.3%), Spain and the Netherlands (-2.5%). And even in them, the fall will be smooth, measured. At the same time, Spain, along with Germany, will become the leaders in the price drop in nominal terms in 2023. At the same time, in 2024, the price drop will be only 1%, and in 2025 (approx. for Spain), we can even expect growth — by 1.5%.
However, Sylvain Breuer, chief economist at S&P Global Ratings for the EMEA region (approx. Europe, the Middle East and Africa), said that for Europe as a whole, there are practically no prospects for a strong rise in real estate markets until 2025. In its analysis, S&P considers it likely that the rapid rise in mortgage rates will affect both housing prices and the volume of investments that European markets are able to attract.
The agency, however, emphasizes that the market will need time to fully adapt to higher interest rates. The time it will take for such an adaptation will vary from country to country. Today, the markets are still trying to work according to the old rules and are reluctant to adjust to the situation. Breuer points out that it may take up to 10 quarters to adapt to the prevailing conditions with lending rates.
In this regard, the agency has updated its expectations regarding the development of the situation with interest rates. The European Central Bank (ECB) is expected to raise the deposit rate to 3% in 2023 (approx. In November 2022, the forecast was 2.25% for the current year), and at the same time, it is not worth expecting a reduction in rates in 2024. The chances are extremely low for a change in the regulator's policy. Already today, in nominal terms, mortgage lending rates have risen to a 10-year high. The situation is unlikely to change until mid-2024.
The S&P Global Ratings report on the prospects of European markets also notes that the impact of rising interest rates on the cost of housing and investment in the sector can vary greatly depending on the country, including indicators of affordable supply in a particular market, the volume of consumer demand and the international popularity of real estate in a particular market. A key role will also be played by what proportion of buyers usually use mortgage funds for purchases and investments in housing. In some countries, up to 70% of buyers resort to mortgages and rising rates will greatly affect these markets. In other countries, purchases with their own funds are very popular and, naturally, the situation in the mortgage market will affect these countries less.