House prices easing to more sustainable levels in Europe

Demand for housing has been shored up by changes in preferences, as people have been increasingly prioritizing properties with gardens and more room for working from home in the wake of pandemic . Both the increase of flexible working and stretched affordability as well as lockdown experience have made households to move to smaller towns , less dense areas , and outer suburbs of major cities . The main fundamentals sustaining steady demand have been : i/ interest rates at unprecedented low levels, ii/ easier access to bank credit, iii/ lockdown-induced “forced” savings, iv/ job and income retention schemes , and v/ attractive returns on real estate investment versus other assets . In the period ahead, l abour market conditions are set to stay favorable even though supply constraints have slowed for now the recovery. While employment growth will be positive , income growth will stay relatively muted (rising less than property prices) this year. This along with high valuations will make it more difficult for households to climb the property ladder. Also, the affordability of the mortgage market will worsen . Credit standards for housing loans will gradually tighten amid lower central bank asset purchases and more restrictive macroprudential policies. All in all, s tr etched housing affordability and somewhat tighter lending conditions will lessen demand for housing, which along with buoyant construction activity , will contain the growth of property prices.