this European Central Bank The (ECB) estimates that house prices in the euro area as a whole will fall by up to 9% over the next two years as a result of the rise in mortgage interest rates. The expert analysis based on recent rate hikes, without taking into account the possibility of further rate hikes, is more sinister than anticipated. a ghost deep crisis The real estate market is becoming more reliable.
In an article published in the ‘Economic Bulletin’, some economists from the institution explained that there was a 63 basis point increase in mortgage interest rates in the first quarter of 2022, representing the largest six-month increase ever recorded. In this sense, they added that this increase will reflect on both housing prices and real estate investment. According to a linear projection prepared by ECB technicians, a one-point increase in mortgage rates results in a 5% decrease in home prices and an 8% decrease in real estate investment two years later.
However, if a non-linear projection is taken into account to account for higher price sensitivity due to the low interest rate environment, the effect of this one-point increase doubles. Like this, Housing prices may fall by 9% in two years, and investment by 15%.. However, some of the decline in home prices may be offset by higher prices and investments in larger homes away from city centers to accommodate changing household preferences in the wake of the pandemic.
But economists and real estate experts disagree on the ultimate impact of rate hikes on each market. The starting point of prices also affects, and each property can handle a complex situation like the current one differently.
moderate estimate
Judith Montoriolprofessional CaixaBank Research, a few days ago thought that the impact of the increase in interest rates and inflation would lead to a moderate decrease in real estate sales in the context of moderate price increase. The slowdown that Montoriol expected before the latest rate hike came amid high inflation (10.4% in August), eroding household purchasing power and forcing central banks to tighten financial conditions. However, this expert expects inflation to begin to normalize by 2023, allowing interest rates to remain at limited levels from a historical perspective. This “include” level of Euribor will be around 1.8% in the fourth quarter of 2023. All these”Spain should ease the limitation of the process of harmonization of the real estate market Therefore, according to these forecasts, it is expected that the number of sales will decrease by 2.8% and 10.8% in 2022 and 2023, respectively, and housing prices will slow down. From 6.6% for 2022 to 2.2% in 2023.
The most apocalyptic prediction
However, this relatively optimistic view is being scrutinized by other experts in the face of an increase in interest rates, which may be much higher than expected. In the real estate sector, there are concerns that there will be a further increase in reference rates. Ismail Clement, CEO and vice president of real estate group Merlin Properties, Prior to last summer, he had announced that the general oversupply crisis in the real estate industry had become a reality. He was particularly concerned about the impact of rising interest rates and its impact on mortgages: “You have to put a price on uncertainty. But debt will be between 3% and 3.5%. And mortgages won’t go below 5%,” he announced for next year. The most pessimistic viewpoints seem to be getting stronger. Note that some mortgages will go from zero to 2.5% over the next two months. If the mortgage growth reaches 4.5% next year, many will see the price of family loans increase by between 200 and 300 euros per month.