The great European house price boom ended in 2007 according to a new report predicting storm clouds on the horizon for the Continent’s property markets.
Only Cyprus and Iceland saw house prices outstrip the previous year’s performance, according to the Royal Institution of Chartered Surveyors report, which called the end of the property goldrush.
Report author Michael Ball said: “2007 will probably go down in history as the year that the great European house price boom ended.
The year started so strongly on a wave of optimism but ended bleakly for housing markets in virtually every country.
Purchasers could no longer afford to buy at ever-rising interest rates. Housing markets either froze as a result or prices started to slide.”
Poland saw the fastest rising house prices with 28% inflation last year, but the report warned the country’s prospects had shifted sharply to downbeat in the second half of the year
Former boom nation Ireland was the worst performing European country with house prices falling 7% last year, while the previously strong performing Baltic states were also hit hard.
Professor Ball, of the Department of Real Estate and planning at the University of Reading, said that while the credit crunch had been widely blamed for the property slowdown, its effects were still not being seen fully.
Instead, rising interest rates and affordability finally reaching breaking point were responsible for the shift in mood that brought an ‘autumn chill’ and ‘winter stagnation’ to the UK and other markets.
“The finger of blame has been pointed at the worldwide credit crunch in existence from summer onwards,” says Prof Ball.
“However, the most important factor was probably the more prosaic one of rising interest rates. Interest rate responses by monetary authorities and capital markets responses to concerns about escalating general price inflation brought the housing boom to an end.
A common event in European housing market history of inflation-induced increases in interest rates was being acted out once again, although on a much smaller scale than in previous downturns. This gives optimism that the current ‘correction’ will not be too great.”