Despite interest rate rises and a supply increase in several buoyant housing markets, Europe continued to show solid house-price inflation across the board, reports the RICS European Housing Review 2007.
In a positive sign for European property investors, local markets failed to follow the lead from across the Atlantic as the US market ground to a halt. Whilst most markets did not quite reach the highs of 2005, many are still rewarding savvy investors with double digit growth.
As a result of this continued boom, perhaps the only thing more buoyant than European house prices are the mortgage lending markets themselves. Rate rises by the European Central Bank (ECB) did little to halt the rapid growth in mortgage debt with mortgage lending in eight out of the 12 euro-zone countries rising at double digit rates in 2006. Consumers and mortgage lenders alike have not balked at the onset of interest rate rises, shrugging off suggestions of over-valuation and significant price corrections.
Whilst the ECB increased interest rates by 1.5% in the 2005-2006 period, lenders failed to pass on the bulk of the rise with consumers still afforded the luxury of borrowing below these increases. This may go some way to explaining why Europe has failed to follow the US into a house-building drought.
Of the big four, only the UK outstripped its 2005 performance with house prises rising by 10%. This bounce back to form reflects the UK's dire land and new housing predicament, as lack of supply continues to artificially inflate the market.
The report's author, professor Michael Ball, said:
"In the main Europe's housing markets had another strong year. The long predicted soft-landings have yet to materialise, with European Central bank interest rate rises having little effect in the Euro-zone so far."
Milan Khatri, RICS chief economist, added:
"Fears of a considerable house price slowdown in what are considered as over-heated markets of the UK, Spain and Ireland, once again proved to be quite off the mark of actual developments. Rising income and employment levels have cushioned these and other markets across Europe from rising interest rates, and the prospects for 2007 remain good as many economies have entered the year on a firm note."
Michael Ball is professor of Urban and Property Economics at the Department of Real Estate and Planning at the Business School at Reading University.
The summary of the 2007 European Housing Review can be viewed here
For the full report, visit www.rics.org/ehr2007