House prices in Europe set to rise with growing demand, limited supply: ECB

The European Central Bank (ECB) expects house prices in the eurozone to keep rising, driven by strong demand and limited housing supply, despite a recent decline in real estate prices.

The European Central Bank (ECB) predicts that house prices in the eurozone will continue to rise following a recent recovery in the real estate market, as stated in a report released on Monday.

High construction costs and elevated house purchase prices are hindering the creation of additional housing supply. As a result, the upward trend in prices may persist, driven by strong demand and limited housing availability, the ECB noted.

The report highlights that, despite a recent decline, real estate prices in the eurozone remain elevated. "This has worsened housing affordability, even as monetary policy has become less restrictive," the report stated.

ECB research shows that property prices in the region have dropped by 3% over the past 18 months, a smaller decline compared to the 5% drop during the 2008 global financial crisis and the eurozone debt crisis.

Before 2022, the region's property market had experienced a multi-year boom, with central banks frequently warning about overvaluation in major cities.

A combination of soaring inflation following the COVID-19 pandemic, rising energy costs, increasing interest rates, and tighter financing conditions led to a decrease in house prices starting in 2022. However, by the third quarter of 2024, real estate prices in the eurozone had rebounded, surpassing their 2022 levels.

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