Rising rates are blocking investment in housing

Cycle of rise in interest rates launched last summer by the European Central Bank (ECB) has not only resulted in a noticeable increase in mortgages in the heat strong growth of Euribor. Monetary policy decisions have also led to a sharp halt in real estate investment across the eurozone, and according to data available to the agency, that impact is likely to increase in the coming months. All this despite the fact that housing investment could have increased between January and March, as suggested by the growth in the output of the construction sector, by an average of 3.7% compared to the last quarter of 2022. However, ECB economists qualify that “this result reflecting strong base performance in a context of high volatility” which, among other things, affected the “persistence of large portfolios of pending orders”.

All in all, the dynamics of investment in housing construction is also still maintained loss of purchasing power in the region, with the average income having to face the payment growing mortgage. Added to this, according to the ECB, is lower profitability in the sector, measured by the ratio of prices in relation to construction costs. “Although affordability and profitability move in opposite directions, driven by house price fluctuations, both variables decreased at an unprecedented rate in the fourth quarter of 2022 due to rising mortgage rates and construction costs,” the experts said.

So everything points to decrease in demand, labor shortages and tightening financial conditions will weigh more heavily on the sector than positive factors such as less material supply constraints. In any case, it should be remembered that it was yesterday Chairman of the Federal Reserve United States (Fed), Jerome Powellsaid they might be unnecessary further rate increases.