Home > Uncategorized > In the EU, house prices are increasing too fast.

In the EU, house prices are increasing too fast.

In the EU, house prices are Increasing too fast (graph 1). Yes, I do know that the general price level is rising, too. And I do know that wages are increasing even somewhat faster than the general price level – which mitigates problems. While, a problem in its own right, in Italy and Greece house prices have been declining for years and are still declining. And almost nowhere the record levels of 2007 have been reached (graph 2). But that does not matter. House prices are increasing too fast.

Graph 1. Annual deflated House Price Index by Member State, % increase, 2015 (Eurostat).

house-prices

House prices have been increasing only recently (in most countries since around the beginning of 2015). And the housing market has also healed, as the number of transactions has rebounded – a good thing. Seventy- and eightysomethings who want to sell their house to move to their children can finally do so, again. People getting a job in another part of a country can finally sell their house, again. And higher prices and higher volumes of sales will really help against the pressing danger of the extremely high level of non performing loans in the EU. Many underwater households will be able to crawl out of the morass of crushing debt thanks to these increases (though we still have to write down a few hundreds of billions of mortgage  debt). Increases as such are not the problem. But that does not matter. House prices are increasing too fast.

Graph 2. Deflated house prices, EU and Euro Area, 2010 = 100. (Eurostat). Mind that EU includes the Euro Area.

long-term

Countries like the UK, Sweden, Ireland, the Netherlands and even Germany will have to act – not by increasing interest rates. But by reforming the housing market (and building a lot – a problem in its own right as at present building is one of the most environmental damaging activities existing. But sustainable building is totally possible – which however will mean denser building in city centres). If such a quality increase would lead to higher prices – that would be a good thing. But at this moment that’s not what’s happening. House prices are increasing too fast. e

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