Are property prices in Europe really continuing to decline?

Decrease in real estate prices in Europe

Real estate in the countries of Europe has indeed started to lose in price, but the rate of this decline is not as impressive as we would like it to be. Since the end of 2022, starting from the fourth quarter, there is a decline in housing prices in the states of the European Union. The decline is becoming more and more noticeable: according to Eurostat data, in the last three months of 2022, the cost of houses and apartments fell by1.4%In the first quarter of 2023, the decline was only0.9%All the listed data is presented in nominal values, taking into account price dynamics.

Dynamics of real estate prices

If we look at the changes in real estate prices in Europe in more detail, it is worth noting that the current decline is not that significant, especially compared to the high growth rates observed in previous years. For example, in Germany, the first quarter of 2023 saw a drop in housing prices of3.1%If we look at the annual figures, the decline turned out to be even more pronounced — a whole6.8%If we compare it to the situation in Sweden, there has been an even sharper decrease in prices there — by6.9%However, it should not be forgotten that in the second quarter of 2022, German housing prices rose significantly.9.7%for a year.

Overall decrease in the Czech Republic and Estonia

There is also a slight decline in prices in the Czech Republic — just by1.1%(in the last three months of 2022 this value was higher -2.2%However, there is also a symbolic growth recorded on an annual basis.1.0%...while in the previous year the growth was more than...22%In the Baltic region of Estonia, according to data for the first three months of 2023, prices remained at the same level, but compared to the first quarter of 2022, there has been an increase in9.2%, which is also a notable increase, given that the second quarter of 2022 growth was up to27.2%.

General changes by country

The dynamics of real estate prices in different countries highlight a wide range of changes. For13 yearsSince 2010, the cost of housing within the European Union has increased by impressive amounts.45.9%The largest increase is observed in:

• Estonia (+200%)
• Hungary (+180%)
• Lithuania (+146%)
• Latvia (+132%)

It is noteworthy that in the three countries mentioned by Eurostat, a decrease in prices was recorded: in Greece (-14%), Italy (-9%) and in Cyprus (-2%).

Regional trends

To date, the largest price declines have been recorded in northern and western Europe, with countries such as Germany, Denmark and Finland showing negative trends. In Sweden, there are also concerns that the commercial real estate market could face serious difficulties that would require government intervention. In contrast, positive price dynamics are observed in Portugal, Spain and Cyprus, although the rate of growth has already significantly decreased. This trend is partly due to high foreign demand and significant activity of foreign investors - in Spain, about15%Deals involving foreigners occur, and in Cyprus, this figure exceeds30%.

Reasons for changing trends

The reasons for such changes in trends are multifaceted. First of all, as already mentioned, the slowdown in price changes became evident after a significant increase in housing prices in previous years. The sharpest price growth in the EU countries was recorded in the first quarter of 2022 with an increase of10.4%This trend has resulted from a combination of various factors: people's desire to change their place of residence after the pandemic, historically low interest rates, and inflation expectations, which in turn created increased demand for real estate.

Rising house prices in the eurozone

In recent years, there has been a significant increase in housing prices in the countries of the Eurozone. This trend began to gain momentum in 2015 and has become particularly noticeable in recent years. According to Eurostat data, the rise in real estate prices is outpacing inflation, which raises certain concerns. Thus, the index showing the difference between real price growth and the level of inflation has reached a critical point.6%. This excess gives reason to talk about the possible formation of a bubble in the real estate market.

Price changes from 2016

Since the beginning of 2016 and up until 2021, housing prices have been increasing on average by3-5.5%above the inflation level. However, by the end of 2022, this gap had narrowed to just0.3%. The graphs published below clearly illustrate the dramatic increase in this rate during the COVID-19 pandemic.

Reasons for the rise in housing prices

The reasons for the price increase are not only related to valuation methods but also to the rising cost of loans. Since July 2022, the European Central Bank has started raising interest rates, which is the first time in...eleven yearsBy June of this year, the rate reached4%The main task of the regulator is to bring inflation in the eurozone back to target levels.2%despite a future projection of5.4%These changes directly affect the mortgage lending market:

• In August 2008, the mortgage rate in Germany was as follows5.5%.
• In 2019, it has dropped to1%.
• By spring 2022, the rate had risen again to3.8%.
• Germans can now get a mortgage at a rate starting from4%to4.5%.

The impact of the conflict in Ukraine

The economic situation in European countries has also been affected by the conflict in Ukraine. This situation makes it difficult for potential buyers to feel optimistic, as the uncertainty in Ukraine and the instability of the economies of neighboring countries complicate an objective analysis of the real estate market.

Predictions for the future

What does the future hold? It will be possible to talk about price recovery only if the economy as a whole stabilizes. Experts say that the peak of inflation in Europe has already passed, but the European Central Bank is not expected to lower rates in the coming months. Most likely, we will see a new increase in interest rates, which will have a negative impact on demand in real estate.

Correction of housing prices

In the absence of an increase in mortgage rates, discussions have begun in several countries about the inevitable correction of prices. In some cases, experts, such as those from the Swiss National Bank, are surprised that housing prices in this country are...15-40%exceeds values justified by the main economic factors. However, this does not necessarily indicate a sharp decline in prices. New market offerings may play a key role in this, and under pandemic conditions, the availability of housing in Switzerland has significantly decreased, which may help keep prices at their previous levels.

Forecasts by country

On the other hand, countries such as Austria and Germany are forecast to see a decline in the price of5-6%In a year, this will vary depending on the specific region. A high level of inflation does not contribute to significant declines in housing prices in most European countries, which makes forecasts for the real estate market quite uncertain.

Real estate in Europe: Opportunities for living and investing

Real estate in well-known European countries not only offers a wonderful opportunity for living but also presents a prospect for profitable investments. Let's take a look at a few interesting properties that may attract buyers' attention.

Italy: Luxury house on the river bank

Let's start with Italy, where in the picturesque area of Lodi, on the banks of the Adda River, there is a magnificent mansion worth3,900,000 €. This house, built in the twelfth century, now functions as a luxury hotel. Thanks to careful restoration, the building has retained its beautiful condition. This villa has six comfortable bedrooms and exquisite interiors that make it an ideal place for a vacation.

Spain: Villas on the Costa Brava

Now let's move to Spain, to the Costa Brava coast, where two modern villas in S'Agaró are for sale.

Unique real estate offers

The properties for sale offer buyers stunning sea views and picturesque mountain landscapes. All the offered properties are fully furnished, which allows the new owners to immediately immerse themselves in the atmosphere of coziness and comfort.

In addition to everything, each property comes with a parking space and a garden, making life not only convenient but also more enjoyable. The complex also features a swimming pool, providing opportunities for relaxing leisure and water activities.

Commercial real estate from Mercury Group

Mercury Group offers a variety of commercial real estate options in Limassol, Cyprus, with a total area of 644 square meters, priced at3,300,000 eurosIn addition to this, a townhouse from Blue Sky Houses is available on the Costa Blanca, Spain, with an area of 298 square meters, priced at1,650,000 euros.

Acquiring this property allows its new owners to obtain residency. These exquisite apartments are located on the beachfront and offer stunning views of both the sea and the picturesque city of Benidorm.

Amenities and services

• Supermarkets
• Catering establishments
• Stores
• Bars

Thanks to its convenient location, all necessary services are within walking distance. All properties are equipped with their own pool, storage room, sun terrace, jacuzzi, and garage.

Mercury Group apartments are worth720,000 eurosfor 108 square meters in Limassol; they offer stunning views of the mountains and the city and feature thoughtfully designed layouts that embody comfort and elegance.

Spacious apartments

These living spaces feature spacious rooms equipped with large windows that fill the area with natural light, creating an atmosphere of freedom and comfort.

Luxury villa in Paphos

Moving towards the villa from Blue Sky Houses in Paphos, Cyprus, it is worth noting that the area of this property is1372 square meters, and the price —4,830,000 euros. Located on the picturesque Peyia Plateau, this six-bedroom luxury villa exemplifies style and sophistication.

The villa blends harmoniously into the surrounding landscape, combining modern architectural solutions with beautiful natural views, just a few minutes' drive from the blue flag beaches known for their cleanliness and quality.

A separate villa in Italy

A villa stands alone in Forte dei Marmi, Italy, with an area of350 square meters, which is available for2,800,000 eurosIt is just two minutes from the city center and also has a swimming pool.

This property has undergone a complete renovation with a focus on the use of high-quality materials and finishes, reflecting careful attention to detail. It is spacious and bright, ready to welcome its new residents. The renovation was completed in June 2023.

Affordable option in Finland

It is also worth mentioning the townhouse in Somero, Finland, with an area of31 square meters, which is offered for24,000 eurosThe deal can be completed remotely, which significantly simplifies the purchasing process.

This house was built in 1971 and has centralized heating. Utility bills are only124 eurosper month, and the payment for water is based on the meter. This is a wonderful offer for those looking for affordable housing abroad.

Conclusion

In conclusion, it should be noted that the real estate market in Europe is showing noticeable changes and fluctuations influenced by various economic factors. As an observer of this situation, I see that despite some signs of a significant drop in prices, the overall context indicates a complex and multi-layered dynamic.

After the rapid rise in housing prices in recent years, current indicators suggest a cooling of the market. However, the slow decline in housing prices should not be seen as a complete collapse — it is more of a correction following the tumultuous growth driven by a combination of low interest rates and demand during the pandemic.

It is also interesting that the impact of external factors such as the conflict in Ukraine and the rate of inflation are having a strong impact on buyer sentiment in Europe. Increased economic instability is creating a low level of optimism, which in turn is affecting housing demand. Moreover, rising mortgage interest rates are only exacerbating the situation, depriving many potential buyers of the opportunity to purchase real estate.

However, it is important to remember that the situation varies in different countries. For example, some nations, such as Portugal and Spain, continue to experience positive demand trends. This is due not only to local economic conditions but also to a high level of external demand for housing, which in turn can support prices.

The future of the real estate market

What will be the fate of the real estate market in the future? In my opinion, we should expect a period of instability until economic stabilization occurs. Possible price corrections in different countries will depend on a variety of factors, including:

• the order of appearance of a new proposal
• inflation rate
• changes at the regulatory level

If there are upcoming changes at the regulatory level and financial policy is revised, this could very well signal a recovery in the real estate market in Europe.

Result

In closing, I remind you that the most important point is.balance between supply and demandIn times of crisis, there will always be opportunities for investment, and experienced investors will be able to leverage this situation to their advantage. It is important to monitor the economic situation and make informed predictions based on actual data and trends.

Thus, the real estate market will continue to be an interesting and multifaceted subject for analysis and investment in the future.