2025 Outlook: Brightening prospects for the European housing market

Signs of a h ousing market reversal appeared last year. House prices in the euro area rebounded by 1.9% QoQ (+1.4% YoY) in Q2 2024 after contracting by -1.2% in 2023 and grew by 1.4% in Q3 (+2.6% YoY). For the EU , house prices accelerat ed to 3% in Q2 2024 and to 3.8% in Q3 2024 following a slight correction by 0.3% i n 2023. Slowing inflation, rising wages and resilient employment have shored up household s’ purchase capacity last year . Also, a moderation in housing market activity , following a tightening of credit conditions, result ed in price declines (or price growth moderation in few countries ), improv ing affordability (given that incomes have been rising more rapidly than home values). F inancing conditions have also been improving last year, more rapidly in the euro area and Sweden, which have seen core and services inflation easing more pronouncedly, than in the UK and Norway , whose central banks have been more concerned about upside risks to inflation. At the same, the supply side of the market remains constrained , exacerbated by a period of sluggish construction activity, hampered first by skyrocketing construction costs . While house prices continued to fall over the year in France, Germany , Luxembourg, and Finland until Q3 2024, housing market prospects have now clearly brightened, suggesting positive price developments and a revival in dwelling investment in all European countries in the period ahead .