Yahoo Finance Property prices will continue rising across Europe, says S&P Global report
Housing prices in Europe are rising at the fastest pace since 2006, S&P Global said, as the residential home market recovers from the pandemic faster than other sectors of the economy. The report also said that while inflation may have peaked, it is here to stay.
Prices rose by 6.9% on average in Europe in the second quarter of 2021, compared with the same quarter of last year.
In most markets, strong demand pushed transaction volumes above their pre-pandemic levels. Lending for housing purchases is more dynamic than in 2019, and construction activity is close to full capacity
As supply of new housing is not able to keep pace with structural demand, S&P expects the rise in housing costs to continue over the next four years.
One major reason for the rise is that people have accumulated savings during the pandemic due to lockdowns and restrictions on going out. With more savings put aside, households have been able to put down larger deposits.
S&P estimated that in the six quarters between Q1 2020 and Q2 2021, households accumulated close to 6% of 2019's GDP in excess savings in the eurozone and 9.4% in the U.K.
Also, lower borrowing costs have contributed to rising house prices, as central banks loosen monetary policy as a response to the pandemic. Interest rates fell to a new record low of 1.32% for new housing loans in the eurozone in August.
While there is growing demand for property, there are also more acute supply constraints, after construction activity was put on hold at the onset of the pandemic.
In some cases, lower income households are being priced out of the market, putting greater pressure on governments to expand social housing developments, a general trend that has been increasing as a result of worsening affordability.
Read more: UK house prices could surge as fewer properties come on market
Looking forward, S&P said that as savings are absorbed and central banks start tightening their policy stance, housing price inflation is likely to start moderating to different degrees depending on country-specific factors.
S&P expects housing price inflation to have peaked in mid-2021 in most countries as two of the main demand drivers of housing activity — higher savings and loose monetary policy — are likely to fade.
"In our view, the effect of this will outweigh the third housing price driver, constrained supply," the report said.
The report also said that in the UK, the end of temporary stamp duty relief at the end of September is now contributing to a significant slowdown in price growth
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