The ECB has alerted in their last report that a housing bubble is being created in some European countries. Spain is not one of them, since according to the report the prices are rising properly with the reactivation of the real estate market in the country.
This alert has also been made by the European Systematic Risk Board (ESRB) in their report called “Vulnerabilities in the EU residential real estate sector”. According to the report the countries that are under risk are Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden and the United Kingdom.
According to the report published last November: “developments in the residential real estate sector can have significant implications for financial stability and the real economy”, and the price increase could affect the whole economy of a country. Some of the countries such as Finland, Luxembourg, Austria, and Germany, are already working in legal initiatives to avoid the bubble, supported by the ECB which approves the measures but says that more macroeconomic prudence policies should be implemented to avoid the worst.
“Developments in the residential real estate sector can have significant implications for financial stability and the real economy”
With the goal of avoiding financial instability the ESRB has analysed in the report the vulnerabilities of each one of the countries that are under risk:
Austria: The main risks for Austria are related to the growth, in the past few years, in real estate prices, mortgage credit and the risk of a further loosening in lending standards. The prices have been increasing in the country really fast, especially from 2011. The prices also appear to be above levels in line with fundamentals in Vienna.
Belgium: Belgium’s high vulnerability is related to the recent fast increase in the families real estate debts combined with groups of already highly indebted households, versus the rapid increase of the prices in the past years. Another fact that has boosted their vulnerability is the low risk weights applied to mortgage lending by the banks.
Denmark: The prices in the big cities are rising really fast and the family’s debt is also high and increasing. Credit growth has not been very rapid but mortgage credit in the big cities has. The report places the country in an imminent pre-crisis level.
Estonia: Their risks are mainly placed in the collateral stretch. RRE (Residential real estate) prices had been rising quickly since 2009 and are close to a pre-crisis peak levels. However, the price growth has been driven mainly by income rather than by credit, and RRE prices have stabilised somewhat in the past year. Risks are still there but if Estonian authorities keep on creating precautionary measures, the bubble could be avoided.
Finland: Main vulnerabilities in the country are considered to be the high and increasing household indebtedness, especially among some groups of households. Also, if risks were to materialise, there may be potential spillover effects on other countries in the NordicBaltic region.
Luxembourg: Risks are considered to be the high real estate prices and increasing household debt. The collateral stretch is driven by a steady increase in RRE prices in recent years, which has brought prices to an unprecedentedly high level. These price developments have been sustained by a structural imbalance between strong housing demand – fuelled, inter alia, by both demographic factors and policy incentives – and supply-side limitations in terms of the availability of housing. Vulnerabilities in the household stretch are signalled by rising levels of household mortgage debt relative to disposable income.
Malta: The risks of housing bubble in Malta are related to the household and collateral stretches. Growth of household debt is rapid and mainly driven by an increase in mortgage debt. Malta has a relatively high debt level and debt service burden compared with other countries.
The Netherlands: The principal risk is the persistently high household debt levels combined with low mortgage collateralisation. In particular, there is a large group of households, especially younger mortgagors, which have debt levels that exceed the value of their home.
Slovakia: The principal risks for the Slovakian real estate market are related to the collateral and household stretches. In particular, rapid credit growth may signal rising vulnerabilities from the household stretch and could lead to a build-up of excessive household debt in the future.
Sweden: Main risks are considered to be the increasing real estate prices that appear to be overvalued, and high and increasing indebtedness especially among some groups of households. In addition, if risks were to materialise, there may also be potential spillover effects on other countries in the Nordic-Baltic region.
The United Kingdom: There is currently a high degree of uncertainty about the midterm outlook for the UK housing market, which may be at a turning after the Brexit. Before the referendum, the main risks related to the interaction of a household stretch and a collateral stretch. After the referendum, the outlook for the UK economy and housing market has been revised down.
As you can see in this information advised by the ECB and published by the ESRB, most of the countries that in the past decades seemed to have been seem as the “perfect places to invest in”, are now under a threat of Housing Bubble for similar reasons.
Spain in the other hand is not mentioned at all in the report, and big cities such as Barcelona and Madrid have been recently mentioned by the CEB as “positively growing”, and since the prices are rising moderately, there is no risk of collapse in the RRE market in the following years.
Housers offers the opportunity to invest in Spain, and to be able to take advantage of one of the few countries in Europe that is not only not under threat at the moment; on the contrary, Spain right now, according to all the experts and studies recently published, is the ideal place to invest in, especially in the big cities, where prices are expected to grow substantially in the next few years.
Source: ESRB EUROPE