Eurozone housing market faces challenges in search for stability

Drop in demand hinders recovery

Mortgage rates have risen sharply over the past year, resulting in a slowdown in demand for housing loans. House prices in the region have also been pushed down as sellers have adjusted their asking prices. New production of housing loans in the eurozone in the first five months of this year was more than 60% below last year's volume, and the number of housing transactions has also seen a significant drop. In the first quarter of 2023, for instance, it fell 23% in Belgium and the Netherlands compared to the previous quarter, 16% in France, and 8% in Spain. With mortgage production leading housing transactions, a further decline in the number of transactions is still to be expected.

Eurostat figures published last Wednesday showed that the fall in demand led to a 0.9% quarter-on-quarter drop in property prices in the eurozone, after a 1.7% QoQ fall in the fourth quarter of 2022. Looking ahead, it appears unlikely that we'll see a robust recovery any time soon. We expect demand to pick up slightly only at the end of the year, with prices following suit in the first half of 2024. Besides the negative impact of the rise in financing costs on prices, the green transition in the housing market will play an increasingly important role in price setting.