Real-estate market. The ECB estimates that house prices will fall by up to 9% due to the rise in mortgage rates

The European Central Bank (ECB) estimates that house prices in the euro area as a whole will register a decrease of up to 9% in the next two years as a result of the rise in mortgage interest rates.

In an article published in its ‘Economic Bulletin’, several economists from the institution have explained that in the first quarter of 2022 there has been an increase in interest rates on mortgages of 63 basis pointswhich represents the largest six-monthly increase ever recorded.

In this sense, they have added that this rise will have effects on both housing prices and real estate investment. According to a linear projection prepared by the ECB technicians, an increase of one percentage point in mortgage rates causes a decrease in 5% of housing prices after two years, as well as a drop in 8% of real estate investment.

However, if a non-linear projection is taken into account to take into account higher price sensitivity due to the low interest rate environment, the impact of that one percentage point increase is doubled. In this way, housing prices could fall by 9% in a period of two years, while investment would fall by 15%.

However, part of the decline in house prices could be offset by a rising prices and investment in more spacious homes and far from city centers to adjust to the changing preferences of households after the pandemic.

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