Real Estate

17 June 2014

Too Much, Too Fast? 

Real estate markets are rebounding in many areas of Europe, raising concerns that prices have risen too far, too fast.

Housing prices worldwide have risen for seven consecutive quarters, according to the International Monetary Fund, noting that the price-to-income ratios in the fourth quarter of last year were all notably higher than their historical averages in Belgium, France, the UK and the Netherlands.

That could be a sign that fresh property bubbles are emerging only a few years after the financial crisis led to price crashes around Europe. British regulators have announced moves to temper housing inflation in the UK, where London’s housing market is booming with prices more than double the national average.

Soaring prices in Britain are triggering high anxiety at the lower end of the economic scale, where ultra-low interest rates have prompted a surge in first-time home purchases. But prices have also zoomed at the luxury end, where reportedly they start at almost $8 million.

Luxury home buyers put off by London’s prices may be helping revive upscale markets in Madrid, Barcelona, Rome and especially Dublin, where prices are up more than 24% in the past year.

In Monaco, among the world’s most expensive locales, high-end home prices plunged during the recession and reportedly hover around 20% below the previous peak, leaving plenty of potential upside because of tight supply and healthy demand.

Nervousness about surging housing prices is to be expected, given that residential real estate played such a large role in the financial crisis. But can consumers, finance providers and regulators ensure history does not repeat itself?