Eurozone house prices rise at fastest in 11 years
Eurozone house prices rose at the fastest pace in 11 years during the first three months of 2018, a development that is likely to reinforce the European Central Bank’s determination to end a key stimulus program in December.
House prices in the first quarter were 4.5% higher than in the same quarter a year earlier, the European Union’s statistics agency said Tuesday. That was the largest on-the-year increase since the first three months of 2007, well before the onset of the global financial crisis, when asset prices tumbled as the financial system seized up.
The rise in house prices came despite a surprise slowdown in economic growth during the quarter and will likely reassure ECB policy makers that they are right to view the slowdown as largely temporary, and of little lasting consequence. Higher house prices should support growth over the coming months as homeowners feel wealthier and therefore inclined to spend more.
The rise across the currency area as a whole was modest by international standards, with U.S. prices up 6.4% on the year in April. The rise in mortgage lending across the eurozone also remained modest, increasing by just 3.1% over the 12 months through May.
However, some national real-estate markets recorded rates of growth that are rapid enough to worry regulators. Slovenia led the way with a 13.4% rise, while Slovakia, Portugal, Latvia and Ireland also recorded increases of more than 10%.
Ireland’s central bank last week responded to the rapid rise in house prices by requiring banks to set aside extra capital. The regulator raised its countercyclical capital buffer to 1% of assets from zero, giving banks until July 2019 to comply. The tool is intended to slow lending during the good times and require banks to build up a cushion for the bad times in the hope that their lending will fall less sharply than in previous downturns.
France also raised its buffer in June, although its concerns are focused on lending to companies, while Slovakia made a similar move in 2017.
It was Ireland’s second attempt to cool lending. In 2015, it imposed new limits on mortgage loans relative to the income of the borrower and the value of the property being purchased. In the Netherlands and Portugal, authorities have told banks to limit mortgages to 90% of the value of a house.
Similar actions by other national central banks may follow, since the ECB has pledged not to raise its key interest rate until the end of summer 2019. However, it doesn’t expect to continue its purchases of government and other bonds under stimulus program known as quantitative easing into next year.
Other parts of the eurozone have taken more direct measures to cool house prices. In Berlin, the left-leaning local government has moved to rein in the residential real-estate market with a barrage of measures that critics say would have put East Germany’s Communist former rulers to shame.
Among the four largest eurozone economies, the pickup in prices was led by Spain, which suffered one of the currency area’s most dramatic property crashes during the crisis. House prices there were up 6.2% on the year. Italy was the main exception to the overall trend, with prices falling by 0.4% on the year.
In common with other developed regions, eurozone house prices fell after the financial crisis, but began to rise again from mid-2010. Unlike the U.S. and elsewhere, eurozone house prices then fell once more in response to a government debt and banking crisis and only began to rise again in mid-2014.
The start of that rebound coincided with the first of a series of stimulus measures announced by the ECB that were designed to boost weak economic growth and very low inflation.
Write to Paul Hannon at [email protected]
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