Chapter News

The state of the house price cycle in the euro area

ECB: Euro area house prices recovering

House prices in the euro area have turned the corner and can be expected to gradually strengthen further, according to the forthcoming Economic Bulletin. The upturn is favourable for the economy as a whole and has posed little risk for financial stability up to now.

The European Central Bank published an Economic Bulletin that discusses the current state of the euro area house price cycle and compares it with historical patterns. It finds that the recovery in house prices in the euro area has been rather muted thus far and appears to be weaker than the typical increase observed historically during the initial phase of an upturn in the house price cycle.

At the same time, corrections of previous overvaluations, together with favourable income and financing conditions, suggest that the current recovery has a better chance of being sustained than the short-lived upturn observed relatively soon after the crisis.

A gradual and sustained  recovery in the house price cycle would support economic developments. At the same time, the accompanying credit dynamics have thus far remained muted, limiting the build-up of systemic risks to the euro area financial system.

The new macroprudential toolkit is also helping to mitigate possible risks in a targeted and granular way.

The state of the house price cycle in the euro area