House prices in the euro area have fallen to a seven-year low, with some of the steepest declines felt in countries worst hit by the financial crisis, where a large share of household wealth is stored in property.
European Central Bank figures also highlight gaping disparities between eurozone countries – partly echoing their divergent economic fates.
Spain, still reeling from the bursting of a property bubble that left thousands of new dwellings uninhabited, has seen prices plunge further than the average – to 2003 levels.
But Germany, where fewer people own their homes than in Spain, is still riding a surge in prices, now at their highest point in a 10-year index. Italy, regularly a source of economic concern for the bloc, has seen prices fall to the eurozone average of a seven-year low, but there are fears it has further to go.
“Our analysis suggested the extent to which prices had fallen in recent years was directly related to the size they had grown before 2007,” said Yolande Barnes, head of global research at the property group Savills. “Italy looked . . . like it had not seen nearly enough downside yet.
The ECB’s eurozone-wide residential property prices index, updated last week, captures price levels for new and existing properties across the 17-nation bloc. At the end of the first quarter of 2013, it hit 96.33, down from 97.56 at the end of 2012 and the lowest point since mid-2006, before the global financial crisis.
But similar indices focusing on individual countries reveal stark underlying differences, echoing other macroeconomic imbalances across the region, such as wildly divergent unemployment levels, real interest rates and budget deficits.
Exceeding even the Spanish slump is Ireland’s descent, where house prices are at their lowest since 2000.
By contrast, Austria, which like Germany has low unemployment and historically low levels of home ownership, has racked up gains. The most recent data published by the ECB, for the end of 2012, put Austrian property prices at their highest level since the beginning of its 12-year data series.
Of the eurozone countries that have continued to enjoy low interest rates during the crisis and advocated strict austerity in crisis-hit neighbours, the Netherlands stands out as having a housing market in sharp decline, with prices at their lowest for a decade. The Dutch slump, however, follows years of easy mortgage credit and a tax system that spurred mortgage borrowing, but which since this year has been reformed to discourage popular interest-only mortgages.
The German property boom, which started in big cities such as Munich, Frankfurt and Berlin but by some measures has spread further, partly reflects the search for yield for household savings in a low-interest-rate environment. The Bundesbank has expressed concern about this. Since interest rates are set by the ECB for the whole eurozone, the German central bank would be able to intervene only by adopting macroprudential measures, such as capping the loan-to-value of mortgages, if it needed to cool the market.
Alexander Koch, an economist at UniCredit in Munich, noted that a longer view on German property in big cities, going back to 1990, showed more moderate gains, especially compared with countries with recognised property bubbles such as Spain and Ireland.