At a Glance - European residential markets - H2 2022

Transactions are cooling down 

• Housing transaction volume dropped by 6.9% in Q4 2022 on a rolling year basis.
• The slowdown is driven by several factors: the tightening in credit conditions, the significant increase in mortgage rates and of course the constant increase in house prices. Consequently, we observe a significant worsening of housing affordability triggering a decline in the number of transactions.
• Housing transactions declined by 32% in Denmark,     -24% in the United Kingdom, -15% in the Netherlands. The decline is more moderate in France (-6.2%), Norway (-7.7%) and Sweden (-7.1%).

Drop in investment volume

• Residential investment volumes in Europe reached €5.7bn in Q1 2023, down -70% compared to the same period last year and -53% vs the 5-year average.
• The residential investment in Europe is strongly impacted by interest rate hikes. Investors continue in a wait-and-see attitude despite a real interest in the asset class. The increases in mortgage rates and government bond yields are challenging the investment market by reducing the risk premium and the risk adjusted return of real estate. Hence, we expect yields to decompress and thus prices to adjust in order to balance the increase in the financing cost.
• Nevertheless, the underlying residential fundamentals are still very positive. We observe a strong disequilibrium between demand and supply in large urban cities. In these locations there is positive population and income growth and upwards pressure in the rental market, magnified by inflation and the shift in the monetary policy.