Sky over European housing market clears further
According to new Eurostat figures, house price dynamics in the EU as a whole picked up somewhat further in the second quarter of 2024. Although differences between member states remain large, it seems that, overall, we are gradually leaving the cooling in the European housing market behind. It is worth noting that countries with a solid price correction during the past two years (including Germany and Luxembourg) saw their house prices rise again. Belgium was one of only two countries where prices decreased (very slightly) in the second quarter. We should not be too worried about this. After all, the minuscule correction in Belgium followed several previous quarters of decent price increases and mainly implies a tempering of the earlier even robust pace of price increases in new houses.
Eurostat published house price figures for the second quarter of 2024 late last week. This is the 'harmonised house price index' for EU member states, which takes into account both existing and new homes and corrects for price changes that are purely due to changes in the characteristics of the property sold. Compared to raw price figures, the corrected index provides a better view of the real, underlying price dynamics in the housing market. The index, which is based on sales deeds, does measure the price evolution with some lag (typically several months) against the date when the sales price was fixed in a preliminary agreement.
In the EU as a whole, house prices rose by 1.9% in the second quarter compared to the previous one (1.8% for existing homes and 2.0% for new homes). The figure implies a firming of the pace of increase compared to the first quarter, when prices had risen by 0.6%. Against the same quarter a year earlier, house prices in the EU were 2.9% higher in Q2 2024, which is also an acceleration compared to Q1 2024 (+1.5%).
Differences between countries
Most striking in the new Q2 figures is the sharp decline in the number of countries with a price drop compared to the previous quarter. At the peak in Q4 2022, there were sixteen. By Q1 2024, that number had dropped to eight and in Q2 2024 it fell further to just two. These are France and Belgium, where the quarterly decline was limited to 0.2% in each case. At the other end, there are also quite a few countries with solid price increases in Q2. In eight countries it was 3% or more (see figure 1).
The large differences at the level of individual member states are also reflected in the fact that there are still quite a few countries that have not had a single negative quarterly figure in recent years. These include Croatia, Portugal, Greece, Malta, Bulgaria, Lithuania and Slovenia. This suggests that the cooling of the housing market has by no means manifested itself (to the same extent) everywhere. On the positive side, countries with a strong price correction during the past two years saw house prices rise again in Q2 2024. These include Luxembourg (+1.0%), Germany (+1.3%), Finland (+0.3%), Sweden (+1.4%) and Austria (+2.5%). France is a notable exception. Following already a strong cumulative price correction of 6.2%, prices there fell further in Q2 2024, albeit modestly by 0.2%.
Although this does not apply (equally strongly) to all individual countries, overall, the new Q2 figures seem to indicate that we are gradually leaving the cooling in the European housing market behind. This cooling occurred since the second half of 2022 and implied an overall minor price correction for the EU as a whole. The ever improving picture also emerges when looking at the year-on-year change in house prices across countries. This is much less volatile than the quarterly change and thus gives a better picture regarding ongoing price dynamics. Figure 2 shows that the number of EU member states with an annual price fall has further decreased in Q2 2024 to six, of which only one country (Luxembourg) with a price fall of more than 5% remains. More countries (now 14) also experienced an annual price increase of above 5% in Q2 2024. In some of these (e.g. Bulgaria), which have not experienced a cooling, house price growth in recent years has been so strong that it may be exaggerated.
Limited price fall in Belgium no major concern
In Belgium, house prices fell 0.2% in the second quarter compared to the previous one. The correction concerned only new construction (-1.2%). Prices of existing homes continued to rise slightly by 0.1%. The minuscule decline in prices for housing as a whole in Q2 followed three previous quarters of decent price increases (see figure 3). Cumulatively, that previous increase in Belgium between Q2 2023 and Q1 2024 was 3.6%. For existing homes it was 2.5%, for new ones as much as 8.1%.
Typically, quarter-on-quarter changes in house prices are very volatile, so we need not be too worried about the small price drop in Q2. Incidentally, year-on-year price dynamics also picked up further in Belgium, from 3.2% in Q1 to 3.4% in Q2. For new builds, the year-on-year increase in Q2 was 6.8% (was 7.8% in Q1), for existing homes 2.6% (was 2.1% in Q1). In fact, the second-quarter figure brought some tempering to the robust pace of new construction price increases in previous quarters.
Although the dynamics of European and also Belgian house prices became more positive again in recent quarters (year-on-year and in nominal terms), the 'real' house price trend (i.e. adjusted for general HICP inflation) still remains (to a limited extent) negative (see figure 3). In the first half of 2024, Belgian consumer prices rose by 4.0% compared to a year earlier, while house prices increased by 3.3%. In the EU, those two figures were 2.7% and 2.2% respectively.
