By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, July 9, 2022
In the first quarter of 2022, house prices, as measured by the European House Price Index, rose by 9.8% in the euro area and by 10.5% in the European Union (27 countries) compared with the first quarter in 2021. This is the highest annual increase for the euro area since 2005 when house prices started to be collected, and since the fourth quarter of 2006 for the European Union, reported Eurostat, the European statistics agency.
In the fourth quarter of 2021, house prices rose by 9.4% and 10.1% in the Euro zone and EU respectively. Compared with the fourth quarter of 2021, house prices rose by 1.7% in the euro area and by 2.1% in the EU in the first quarter of 2022.
House price developments in the EU Member States
All Member States for which data are available showed an annual increase in house prices in the first quarter of 2022 and, for seventeen of them, this increase exceeded 10%. The lowest increases were registered in Cyprus (+1.1%), Finland (+4.3%) and Italy (+4.6%). The highest increases were recorded in Czechia (+24.7%), Estonia (+21.0%) and Hungary (+20.6%).
Compared with the previous quarter, prices also increased in all Member States. The lowest increases were registered in Malta (+0.4%), Cyprus (+0.5%) and Germany (+0.8%). The highest increases were recorded in Estonia (+7.1%), Hungary (+6.7%) and Bulgaria (+5.2%).
The hard and unpopular truth is that in the European Union, between 2016 and 2020, every year, house prices increased more than inflation in 25 of 26 Member States. In 2020, the highest differences between annual changes of house prices and the annual inflation rate were recorded in Luxembourg (+13.3 %), Croatia and Portugal (+7.4 % each), Slovakia (+7.2 %), Germany (+7.1 %) and Poland (+7.0 %), according to Eurostat. Over the period 2010 until the second quarter of 2021, rents increased by 15.7 % and house prices by 34.4 % according to Eurostat.
Rents and house prices in the EU have then continued their steady increase in the second quarter of 2021, going up by 1.3 % and 7.3 % respectively, compared to the second quarter of 2020.
One could say that this is good news for homeowners, who have seen the value of their housing assets significantly growing in a decade. The answer is that this is not good new at all. Such a skyrocketing growth of housing prices constitutes a bubble. Any bubble is dangerous and useless for the economy as it attracts and freeze investments that are needed in the productive economy. Bubbles regularly burst, it’s a cycle. There were real estate bubbles in the 19th century, the 20th century and in the 21st century.
Assets bubbles mean that billions of dollars are injected in speculative assets. These billions don’t go to business productivity, education and infrastructure. They go feeding the real estate bubble. Households, manufacturing companies and eventually the whole economy suffer from such bubbles.
When comparing the second quarter of 2021 with 2010, European house prices increased more than rents in 18 EU Member States. House prices increased in 23 Member States and decreased in four, with the highest rises in Estonia (+132.7 %), Luxembourg (+110.8 %) and Hungary (+108.9 %). For these three European countries, this is more than a 100% housing prices growth in only ten years. If it’s not a bubble, what is it ?
House prices and rents – EU – Index levels (2010 = 100). From 2010 Q1 to 2021 Q2.
Decreases in the housing prices were observed in Greece (-28.0 %), Italy (-13.0 %), Cyprus (-7.8 %) and Spain (-2.5 %) between 2010 and the second quarter of 2021, showing that the real estate bubble can crash.
For rents, the pattern was different. When comparing the second quarter of 2021 with 2010, prices increased in 25 EU Member States and decreased in two. The highest rises of rent prices were in Estonia (+142.4 %), Lithuania (+109.1 %) and Ireland (+65.6 %). Again, decreases were recorded in Greece (-25.1 %) and Cyprus (-3.3 %) between 2010 and 2021 Q2.
With such growing housing prices in Europe and coming rate hikes by the European central bank, the bubble could burst soon. In May 2022, as annual inflation in the Eurozone amounted to 7.5% in March and 7.4% in April, ECB bankers began circulating the news that a rate hike will take place in July 2022, in order to curb this inflation. High key interest rates will make more difficult to get mortgage and purchase expensive houses and appartments. In addition, real income of European workers don’t increase. Housing prices can only decrease in the coming months.
With European inflation hitting record 8.6% in June, up from 8.1% in May, the only way to secure wealth seems to be investing in gold and silver. Investing in a forest and farming lands are also options.
Read also : How to invest in gold
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© Copyright 2022 – Swann Collins, investor and consultant in international affairs.
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