European Housing Market Could Be Heading For A Crash Of Epic Proportions Thanks To Negative Interest Rates
It appears the European housing market is heading toward the perfect storm of a collapse. The European Central Bank has initiated negative interest rates and it is causing property values to skyrocket. This is coupled with high rates of household debt in Europe.
The European Central Bank five years ago slashed its benchmark interest rate to below zero in an effort to ramp up the continent’s stagnant economy. However, it kickstarted a surge in demand to buy housing.
Matthias Holzhey, UBS’ head of Swiss real estate told the Times:
A UBS survey found that Munich, Amsterdam, and Paris are among the cities at risk of a bubble. Germany’s central bank discovered real estate in the country’s cities is overvalued by 15% to 30%
ECB’s European Systemic Risk Board responded by asking 11 countries to bring in prices under control. The ECB asked them to increase regulatory requirements and tax policies. Those countries include Denmark, Sweden, and Austria. As a result, Spain capped rents at the rate of inflation. The mayor of Paris also plans to enact rent controls and build subsidized housing.
European Housing Market Heading To A CrashAs Europeans Are Drowning In Debt
Europe’s economic recovery created job growth and made it possible for more people to borrow credit and buy homes. However, most homeowners aren’t flipping those properties as they were before the crisis. As a result, housing prices are up 40% in metropolitan areas of Portugal, Luxembourg, Slovakia, and Ireland over the last five years.
Foreign investors and institutional players are snatching up property in Europe. As a result, this is driving up housing costs.
It’s easy with rates at zero percent. Jyske Bank of Denmark began offering 10-year fixed-rate mortgages at a negative 0.5 percent interest before fees. Nordea Bank is offering 20-year loans at zero interest. As a result, such policies are luring new customers. However, economists argue there are too many of them.
In the Netherlands, the collective household mortgage debt as of March was $584 billion, nearly two-thirds of the Dutch economy. Its central bank recently warned that the housing market is the biggest “systemic risk” to the stability of the economy. If housing prices fall, banks and homeowners will quickly be underwater and it will be a disaster, the bank said.