Interest rates put pressure on the housing market
Real estate
Posted by MoneyController on 27.06.2023
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Rising interest rates lead to higher financing costs, which of course include mortgages. The risks here are not to be underestimated.
In Germany, house prices have fallen by 6.8% since the beginning of the year. As Christian Siedenbiedel explains in the Frankfurter Allgemeine Zeitung, the German housing sector is suffering from rising interest rates. The situation is aggravated by the fact that the property market has been characterised by very high prices.
The most worrying situation in Europe is in Sweden. The Riksbank, Sweden's central bank, raised interest rates by 50 basis points to 3.50% in April. The consequences were not long in coming. The point is that (a) Swedish consumers are twice as indebted as Germans and Italians, (b) they have mostly taken out variable rate mortgages, and (c) mortgages account for 80% of private debt. Finally, as reported by Reuters, the commercial property market is also oversized compared to other European countries: it accounts for 18% of bank loans, three times the percentage in Spain.
Meanwhile, the Bank of England continued its policy of raising interest rates, raising them to 5%. As Candriam's Senior Fund Manager, Fixed Income, Jamie Niven, writes in 'La Repubblica', not only are the markets beginning to anticipate a 6% interest rate level at this point, but England's central bankers may have opted for a recession in order to curb inflation levels. But this will have consequences for consumers, says Niven, and in particular for the property market, where tensions are expected to rise.
In other countries, the situation appears to be even more complex and nuanced. In Italy, the luxury property market is even growing (Wall Street Italia, for example, reports on a survey carried out by Immobiliare.it Insights and LuxuryEstate.com). Not only that, but according to Immobiliare.it, nominal house prices on the peninsula continue to rise. However, the Agenzia delle Entrate reports two important figures: house purchases and sales fell by 8.3% in the first quarter of this year, and the proportion of houses paid for with a mortgage fell from 51.9% to 41.9%. The effects of rising interest rates therefore seem to be being felt in Italy.
Read also:
European real estate risks crisis, but there are still opportunities for investors
Interest rates dampen demand for mortgages and now inflation could hit real estate too
Real estate crisis: not all European countries are equally at risk
