The European Central Bank announces a drop in housing prices

Housing prices in the eurozone could fall "chaotically" as apartments become unaffordable to citizens and unattractive to investors due to high interest rates, the European Central Bank (ECB) warned on Wednesday.

It is one of several risks highlighted in the ECB's analysis of financial stability, with higher borrowing costs and slower economic growth hurting businesses and households.

Since July of last year, the ECB has been trying to curb inflation by raising interest rates, and it seems that it will persist in a strict monetary policy in the coming months as well, notes Reuters.

The sharpest increase in interest rates several decades ago is now beginning to be felt in the real estate market, which has boomed during decades of accessible and affordable loans.

"Looking ahead, the decline in (property) prices could become chaotic as rising interest rates on new mortgage loans increasingly threaten their availability and increase the interest burden on existing mortgage loans," the ECB warned.

This is especially true for countries where mortgage loans with a variable interest rate prevail, the bank pointed out, without specifying which ones. ECB data that the share of mortgage loans with a variable rate is the highest in Portugal, Spain and the Baltic countries, notes Reuters.

The ECB also warned that regions where institutional investors have taken large positions in the residential property market could take a bigger hit if capital withdraws.

This includes Berlin, parts of western Germany and a group of capitals such as Paris, Madrid, Lisbon and Dublin. The ECB points out that households benefit from a strong labor market, so fewer citizens will likely have problems with repaying loans due to job loss, the analysis shows.

Tržište nekretnine, 05. Jun. 2023.