The construction industry is struggling to keep pace with soaring demand in numerous countries, resulting in rising prices almost everywhere, with notable exceptions being China and France.
According to Fitch Ratings, global house prices are on an upward trajectory, projected to rise in the next two years. Their housing and mortgage outlook for 2025 indicates, “Nominal home prices will grow in the low to mid-single digits for most countries over the next two years.”
The fundamental reason behind this price surge is the housing supply not being able to match demand in most nations highlighted in Fitch’s report. Factors such as low unemployment, increasing real wages, and lower inflation have led to an uptick in buyer spending power.
Countries like the Netherlands, Canada, Brazil, and Mexico are anticipated to experience the most significant home price increases by 2025. In Canada and the Netherlands, government initiatives supporting first-time buyers will play a crucial role, while rising wages and construction costs will drive growth in Brazil and Mexico. Conversely, China’s economic slowdown is expected to exert downward pressure on prices.
European Housing Market: Which Countries Experience the Highest Property Prices?
In the Eurozone, improving real household income is driving up demand, consequently inflating prices across the majority of member states. However, France stands out as a notable exception; prices are expected to decline due to affordability issues and political uncertainties that counteract the limited supply and lower rates prevailing in the country. Nevertheless, this decline is projected to slow compared to last year, with potential price increases in 2026.
The Netherlands is seeing rapid price growth, although it’s expected to decelerate from an impressive 13% this year to between 8% and 10% by 2025, and further to 6% to 8% in 2026. This swift growth is primarily driven by a scarcity of available houses, exacerbated by rising material and labor costs.
Population growth and the trend of smaller households are intensifying demand for housing. While government programs aiming to assist first-time buyers could further stimulate this demand, tighter fiscal policies might constrain the growth of purchasing power in the country.
In other European nations, price increases are anticipated to accelerate in Germany and Spain, while remaining stable in Denmark. In Spain, housing costs are projected to rise by 4% to 6% in 2025, followed by a further increase of 5% to 7% in 2026. This demand surge is largely fueled by growing consumer confidence stemming from decreasing interest rates and lower inflation, even as new housing construction struggles to keep up with rising household numbers, with new builds only addressing half of the new household formation, per the report.
Germany is poised for home price growth of 2% to 4% in both 2025 and 2026, up from a modest 1.5% estimated for 2024. Moderate wage growth might restrict affordability, yet rising rents make purchasing homes increasingly appealing, fostering demand.
The UK also expects modest home price growth of 2% to 4% in 2025 and 2026, driven by declining mortgage rates, which lenders foresee reaching 3.5% in 2025, bolstered by a vigorous labor market and increasing nominal earnings.
Denmark anticipates a price increase of 2% to 4% in 2025 and 2026 as lower interest rates, coupled with moderate income growth, enhance affordability.
In Italy, house prices are likely to rise by 0.5% to 2.5% in 2025 and 2026 as demand cools, mainly due to high mortgage rates.
Fitch also predicts that mortgage rates will taper to 2.5% over the next two years but will remain significantly higher than pre-2022 levels. Moreover, the number of building permits is on the decline, which is likely to constrain supply, resulting in most transactions being limited to older properties, which typically yield less growth compared to new constructions.
What to Expect in the Coming Years?
Supply constraints are anticipated to persist across the examined countries due to rising land, labor, and material costs, in addition to heightened borrowing rates for smaller homebuilders and regulatory limits. On the other hand, demand remains robust, buoyed by declining interest rates, stable low unemployment, increasing household disposable income, and new household formations.
Fitch projects that mortgage rates will remain similar to or lower than the end-2024 levels across most countries, which may enhance affordability for many buyers.
Climate Risks: A Growing Concern for Housing Markets
The impact of climate change, particularly incidents of flooding, could significantly influence housing prices. Additionally, EU regulations stressing sustainable construction may have a knock-on effect on house costs.
Energy-efficient homes are expected to see rising demand amidst high energy costs, despite potential declines in prices. Some European banks are already providing varied lending terms based on the Energy Performance Certificate category, according to the report.
Global Developments: Potential Game-Changers for Price Trends
Fitch asserts that home price growth may exceed their current forecasts should economic and household income indicators outperform expectations. Should central banks enact broader rate cuts than anticipated, this could usher additional buyers into the market, further propelling price growth.
Conversely, adverse economic conditions such as escalating unemployment and declining real incomes could dampen demand. A resurgence in inflation might compel central banks to retreat from easing measures, thus constraining household borrowing capacity. Additionally, escalating insurance premiums, maintenance expenses, and in some cases, rising property taxes might deter many prospective buyers from entering the housing market.
Photo credit & article inspired by: Euronews
