Sunday 4 December 2016

Euro zone house-price recovery sustainable but subdued - ECB

Published 15/09/2015 | 10:02

The European Central Bank (ECB) headquarters, right, are illuminated by light as the building stands on the skyline by the River Main in Frankfurt, Germany, on Friday, March 6, 2015. The final countdown is under way for the European Central Bank's program of government-bond purchases, which already fueled a debt-market rally that sent yields across the euro region to record lows. Photographer: Martin Leissl/Bloomberg
The European Central Bank (ECB) headquarters, right, are illuminated by light as the building stands on the skyline by the River Main in Frankfurt, Germany, on Friday, March 6, 2015. The final countdown is under way for the European Central Bank's program of government-bond purchases, which already fueled a debt-market rally that sent yields across the euro region to record lows. Photographer: Martin Leissl/Bloomberg

A recent rise in euro zone property prices appears sustainable, but the recovery is weaker than in past cycles and the eventual normalisation of interest rates poses some risks, the European Central Bank said on Tuesday.

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House prices fell sharply across the euro zone in 2009, then dipped again in 2012 and 2013, unwinding imbalances that built up before the financial crisis and putting the current recovery on a more solid footing, the ECB said in an economic bulletin.

House prices have risen since the second half of 2014 and the growth is sustainable as a mismatch between incomes and property prices has been corrected, the ECB said in the paper that is part of a broader economic update, due to be published on Thursday.

"The recovery in euro area house prices appears to be relatively broad-based across groups of countries," the ECB said. "However, it seems that the current recovery is weaker than the typical increase observed historically during the initial phase of an upturn in house prices after a trough."

Low rates will help the recovery but the boost to housing affordability as interest rates, now at their lower bound, normalise, the ECB said.

"The current recovery in euro area house price growth seems less contingent on prices in metropolitan areas than in 2009-10."

The ECB added that risks to financial stability from the rising prices appear limited for now. Credit growth is subdued and countries have implemented brakes on "potential house price and credit exuberance".

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