In 2022, interest rates soared and sparked the fear of a major European real estate crash. It didn't happen, but there has been little to celebrate since. Instead, the market has entered a phase of virtual freeze, with a sharp slowdown in the number of sales, a shortfall in new construction and a slowdown in property prices, which remain historically very high, limiting young people's access to home ownership.
Across Europe, house prices fell or stagnated in 2023. They fell by 5% in Germany, by 2% in both the UK and France, and rose slightly by 2% to 3% in Italy and Spain, according to data from ratings agency Fitch, in a global real estate report published in December 2023. "We forecast stable or moderately rising prices in 2024 and 2025," the agency said. France is the exception, however, with a price decline of 2% to 4% expected this year.
Economic conditions led us to fear much worse. The European Central Bank raised interest rates from -0.5% to 4% between September 2019 and September 2023, the biggest increase in the currency's history. However, the majority of loans in the eurozone are at fixed rates over long terms. Under these conditions, the rise in rates does not affect those who have already borrowed, but only first-time buyers who, as a result, find it harder to get a loan from the bank. Homeowners with low fixed-rate loans, on the other hand, are avoiding moving for fear of being unable to obtain a new loan. This affects the market, reducing the number of properties for sale. In Germany, for example, the number of mortgages has halved in two years. In France, property transactions have fallen by a quarter. What's more, there isn't enough construction going on, particularly in countries overrun by tourists during the summer season, and in those that have taken in Ukrainian refugees since the start of the Russian invasion of Ukraine in early 2022.
This high-priced market standstill is having a series of painful social consequences. In city centers overrun by tourists, working and middle classes – further punished by energy and food inflation – are finding it increasingly difficult to find housing. Some households have been exiled to the city outskirts, or even worse. In the UK, the number of people made homeless in 2023 exceeded the number of first-time buyers, according to Generation Rent, an NGO that defends tenants. In Ireland, the median age of buyers is now 39, compared with 35 in 2010. In the Netherlands and the Czech Republic, the subject is now fueling political anger. Meanwhile, Italy, Portugal and Greece are trying to combat the excesses of tourism.
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