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Could We Already Be Facing A New Bubble

News Posted On: 11 September 2014


While most of Southern Europe has struggled to find its feet after the 2008 crash, countries on the periphery have watched house prices shoot up as their populations expand, triggering fears that European property prices may have lost touch with reality – even while Spain, Portugal, Italy and Greece struggle for equilibrium.

In Sweden, on the periphery of the Eurozone – not in the EU, but in the European Economic Area – you’ll find the fastest growing capital in Europe, Stockholm, whose population is predicted to expand by 50% by 2030. In a tightly regulated housing market, with an even more tightly regulated rental market that sees waits of several years in Stockholm already, and with regulation standing in the way of development and no government initiative to replace it, housing stock has utterly failed to keep pace with the 30, 000 people who arrive each year looking for somewhere to live.

But that’s a peripheral case, more part of the Scandinavian story than the European, right? Well, not. The IMF called on policymakers in June to do more to curtail housing prices all over the world, pointing out that valuations looked high enough to be out of touch in many countries. It’s not just Sweden where prices have risen since the crash (though few places have seen them treble in 15 years): Belgium and France can hardly be described as ‘not really Europe,’ and they share the same sky-high price problem. In the very heart of the new Europe, Germany’s house prices are actually comparatively low – but the rate at which they are rising isn’t. And July’s data from Moody’s suggests that Britain might be facing a new bubble too.

The underlying narrative here is a tale of two Europe’s. One, the Europe Danes, Greeks, the Irish and Dutch, Portuguese and Spanish live in, fell, and then fell some more, to face catastrophic economic problems triggered by finance, housing or both. The other Europe – the Europe of Belgium Britain, Norway and Sweden, dipped – then rebounded hard.

House prices are forced upward and the economic stimulus offered to stumbling real economies, which largely consists of pinning interest rates to the floor to encourage the flow of credit into businesses, has had the effect of encouraging the flow of customers to mortgage lenders. Lower rates mean you can afford a bigger mortgage – but with property significantly overvalued, how many of those who take advantage of those low rates will be stranded when they rise, or marooned on the shores of negative equity when house prices readjust?

Most Brits thinking of heading abroad aren’t looking for lower-end rental properties – and that’s a good thing, because none are available. Stories abound of Londoners, Parisians and Belgians living in garages and sheds, cupboards and outbuildings. And the price you’ll pay for property is the same wherever you come from, which means rising prices have closed the door on many a would-be expat’s dreams – for now. It also means that, if you’re looking for a property abroad, you should be careful you don’t end up in the same situation as many expatriates and overseas buyers, especially British ones, after the collapse of Spanish property – left holding onto negative equity somewhere inaccessible in another country.

Written by Les Calvert of - overseas property reporter

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