European house price falls not a sign of market bubbles – Scope

Price corrections in Norway, Sweden and Switzerland do not mean that bubbles are bursting in European housing markets, according to Scope Analysis.

In a report published today, the German company argued that the price falls were caused by heightened levels of new construction – but it expects prices to stabilise this year.

“Recent house price corrections have, in part, been caused by the significant expansion in the supply of apartments in the last three years,” Scope said.

“In 2017, supply grew across almost all of Europe for the first time in years. However, growth differs widely among countries.”

Construction of new apartments in Sweden is well above the long-term average. Construction levels are also above average in Switzerland, Norway, Denmark, Finland and Austria, although not to the same extent, it said.

In Germany, on the other hand, construction is at more normal levels, although the number of newly-built apartments since 2010 has grown rapidly each year.

Scope said that, despite the increased construction levels in the region, “residential construction still lags demographic changes in most of the major cities”.

Even in Stockholm and Oslo, the number of households have grown faster than the number of completed apartments in recent years, it said.

The analysis showed that Munich had the largest imbalance, with just 55,000 new apartments for more than 115,000 new households between 2010 and 2017.

The current decline in apartment prices should not be confused with the bursting of a speculative bubble due to overly optimistic expectations or irrational exuberance, Scope said. Speculative construction is not widespread across Europe, it added.

The only exceptions are the high-price segments in major cities such as London, Paris or Munich.

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