COVID-19’s Effect on Prices of Real Estate in Europe

If this trend continues, are European real estate markets suited for buyers or sellers? Or are there enough listings to keep up with the demand we see in the market? These are just a few questions that will help us determine COVID-19’s impact on real estate prices.

The last decade has seen rises and falls in the average growth rate for European real estate. Eurostat is a fantastic resource for any economic statistics, including the housing market. For example, in the first quarter of 2015, Lithuanian home prices were around 4.5% higher than in the first quarter of 2014.

From the years 2015 to 2019, average growth rates in respective countries stayed relatively stable. Here are a few examples of average year-over-year growth rates from 2015-2019 for some European nations:

• Lithuania - 6.44%

• France - 4.5%

• Sweden - 5.93%

• Finland - 0.88%

• Latvia - 6.55%

• Estonia - 6.02%

• Poland - 4.5%

• Germany - 6.15%

If you want to see the growth rates for any other nation, you can use this table from Eurostat.

It is challenging to aggregate statistics for the entirety of Europe because some markets have significant growth or decline while others stay stagnant. Eurostat has a report showing the aggregate housing market for all of Europe in 2019 and 2020.

As you can tell from these percentages, different areas of Europe experienced vastly different growth rates in the pre-pandemic world. These differences had to do with the demand for housing. The same issue arose during COVID-19, causing different growth rates depending on the area.

As the pandemic set in, people’s spending choices altered almost immediately. According to the ECB, more people began to save on services and activities instead of spending their incomes on services and activities.

The higher degree of saving was a direct result of the pandemic. In the periods before the 2008 financial crisis and the 2012 debt crisis, European households saved a higher percentage of their income. They did so to ward off the immediate effects of a recession, namely job-less.

The COVID-19 pandemic was no different in this regard. People saved more money to counteract the negative outcomes losing a job brings about. As the economy has slowly recovered, so too have people’s spending habits.

Since more people have been saving, more people have the requisite down-payment for a home. That’s why we’ve seen increases in home prices in countries that aren’t known for their large jumps in price. Let’s go through some of the average year-over-year growth rates for 2020 and the first quarter of 2021:

• Lithuania - 8.2%

• France - 5.26%

• Sweden - 4.8%

• Finland - 2.16%

• Latvia - 3.4%

• Estonia - 6.16%

• Poland - 9.84%

• Germany - 8.08%

If we compare the pandemic growth rates with the pre-pandemic rates, we can see that in most cases, growth has increased during the pandemic. The exceptions include Sweden and Latvia, which had a larger growth rate pre-pandemic, and Estonia, which had a similar growth rate before and after the pandemic.

There are significant jumps in the growth rate, too. For example, Lithuania’s growth rate increased by more than 27% during the pandemic, while Poland’s increased by 118%. The most significant change in growth rates was Finland, which saw a 145% increase in the growth rate.

One of the most important facts we can glean from these statistics is that all of these countries saw growth in the prices of homes. Some nations had much smaller growth than others, but it was growth nonetheless. Consistent growth is an indicator of a healthy real estate market.

If you’re in the market to buy a home, know that many counties are seeing a rise in demand now that the pandemic is coming to a close. In the beginning and during the pandemic, many people didn’t want to sell their homes and move, which resulted in a drop in transactions, according to Eurostat.

But that trend changed in 2021. In the first quarter of 2021, countries such as Finland and Denmark have seen a 15% and 45% increase in year-over-year house transactions, respectively. All the countries outlined by Eurostat have seen an increase in their transactions in 2021, compared to the prior year.

So, what do these statistics tell us about the future of the European housing market? The price of homes has increased during the pandemic, and an increase in the number of transactions (and therefore, supply) has not tampered down the rising costs.

All of this together indicates that the European housing market is undergoing a healthy growth phase. This growth is much higher in some nations than expected, but it remains within normal levels for each market. Let’s use an example to underline this point.

Finland saw an enormous increase in its growth rate during the pandemic, but it still only expect a rise of 3% in 2021. Alongside the increase in transactions, a 3% growth in home prices is perfectly sustainable.

The same thing can be said of Lithuania. Although they saw a much larger year-over-year increase in 2021 home prices, 12%, this number seems more like an outlier than the norm. Analyzing the history of Lithuanian home prices, we can see that one-time jumps such as this are not uncommon. Since the average growth rate pre-pandemic was closer to 6%, a one-quarter increase of 12% won’t distort prices too drastically.

So the housing market is booming, but who is reaping the rewards? With housing prices soaring, it is currently a sellers market. There is a large demand, which means that sellers can increase their prices, and buyers will have to match if they want to beat the competition for purchase.

Real estate might be a smart investment right now, but it also is more challenging to make that investment because of a rise in real estate prices. Buying a home costs more now than pre-pandemic. However, if you can afford it the purchase will hold its value for the foreseeable future.

The European housing market saw some of the most dramatic effects of the pandemic on prices during the first and second quarters of 2020. Since then, prices have stayed mainly within each nation’s historical growth rate, except for some well-performing housing markets.

With this in mind, if you’re looking to invest in the housing market, now may be your chance. With favorable growth rates for the foreseeable future, buying a house now might prove to be the best investment available to you.