There was a further increase in prices in most international property markets in 2017 − indeed a sharp one in many cases. Looking at individual countries, the overall picture has even improved further since there were hardly any countries left with falling prices to offset countries with strong price rises, and even where prices did fall, the decline was only just below the zero line. In addition, the pace of price increases, e.g. in Ireland, the Netherlands and Portugal, picked up further. Germany also saw another sharp annual increase of 6 per cent. However, encouraging though the prospect of a market recovery in Greece or Italy may be, this is far outweighed by concerns surrounding the ongoing boom in countries with a strong economy and high immigration rate such as Australia, Canada, New Zealand, Norway and Sweden. Already lively demand for property is being fuelled further by low interest rates and frequently also by investors. However, the price rise cooled noticeably in the second half of the year, and prices even fell in Oslo, Stockholm and Toronto.
Poor affordability as a result of already high prices and a slight rise in interest rates, but also more supply through an upturn in new building activity have had a cooling impact in these boom markets. Above all, though, the rise in prices was brought to an end by stringent macroprudential measures, which were tightened several times in some cases. The rise in house prices since the turn of the millennium − threefold in some cases − has gone hand-in-hand with an excessive household debt. If such a market starts to slide, it could generate a dangerous downward spiral. In order to avoid this, countries are opting for more stringent lending requirements, binding repayments or taxes for foreign buyers. Ultimately, however, the risks which have built up over a period of years can only be mitigated gradually. An excessive cooling of the market could also lead to an unintentionally severe correction.
Is the German property market also affected? After all, there is also talk of a bubble in the property market in Germany, not least because two-digit price increases are being achieved in big cities such as Berlin, Frankfurt and Munich, which could lead to price corrections, above all in those cities. Overall, however, the risk in Germany is lower: the aggregate price rise is far smaller, household debt much more moderate overall and lending is relatively solid.
What is the outlook for 2018, however? Will the rise in house prices run out of steam and are there be signs heralding a price correction? The latter is rather unlikely in view of mostly solid economic conditions and interest rates which remain low. In addition, in spite of an incipient rise in house building, there is no pronounced supply surplus in individual countries. However, price increases are becoming more difficult and therefore will probably be more muted, including in Germany: after all, rising purchase prices and interest rates which are either stagnating or rising slightly are dampening affordability at a time when the supply of housing is growing. The housing markets are likely to face two further issues this year and beyond: firstly, the extent of the likely rise in interest rates, and secondly, the reaction of housing markets which, for the first time after many years of falling mortgage costs, will have to contend with rising interest rates.
Equally weighted in the index are: Australia, Belgium, Denmark, Germany, Finland, France, Greece, the UK, Ireland, Italy, Canada, New Zealand, the Netherlands, Norway, Austria, Portugal, Sweden, Switzerland, Spain and the US.