ECB: Euro Area Housing Price Growth Hit 13-Year High in 2020

21 June 2021

By David Barwick – FRANKFURT (Econostream) – Housing prices in the euro area grew at the fastest pace in 13 years during 2020, the European Central Bank said on Monday.

In a pre-release from the fourth economic bulletin of the year, due out Thursday, the ECB said that annual house price growth, which stood at 4.3% at the end of 2019, measured 5.8% at the end of last year, the highest growth rate since mid-2007.

The pandemic-era strength of the residential property market has been in contrast to what happened during the global financial crisis and subsequent sovereign debt crisis, during both of which house prices dropped across the euro area, the ECB said.

‘The observed resilience in house prices in 2020 was broad-based and all large euro area countries contributed positively to the annual increase in euro area house prices’, with Germany, France and the Netherlands responsible for almost three fourths of the cumulative price rise as of end-2020, according to the report.

These countries’ joint contribution to higher home prices exceeded their weight in the overall house price index, the report noted.

The report attributed residential property price resilience during the pandemic to various factors, including lockdown measures leading to reduced housing transaction volumes; measures supporting household income and employment; favourable financing conditions; forced savings; and an environment favouring real estate investment.

Citing Eurostat data, the ECB said that over 2020, prices for existing housing grew 0.8 point more than those of new housing. This might be expected, ‘as demand may be partly redirected to the existing stock to compensate for the scarce supply of new housing’, the report said.

Countries where house prices were robust, namely Germany, France and Austria, also tended to experience stronger price rises for existing housing, the study found, a possible reflection of the more than 5% contraction in housing investment in the area last year.

‘The contraction in approvals of building permits seen in the course of 2020 could prolong this phenomenon, thus continuing to support house prices’, the report said.

Comparing residential property price developments in the capital cities with the rest of the respective country reveals the housing market’s resilience to have been broad-based, the ECB said. The ECB estimated that house prices in selected capitals rose 0.7 point less on the year in 2020 than in the euro area on the whole.

‘This may reflect some natural deceleration in price dynamics given the strong house price increases in capital cities in previous years, and that the elevated price levels reached in some jurisdictions triggered some price spillovers or shifts in demand to areas outside capital cities’, the report observed.

This could also have to do with homeworking, an issue for post-pandemic investigation, it said.