Vienna's housing market has become the weakest among major European capitals, experiencing a double-digit decline, exceeding even hard-hit Stockholm. The Austrian capital saw a drop of 12.2% from its peak levels a year ago, while Stockholm was down 6.4%. This contrasts with price gains in Madrid, Milan and Zurich.
Stricter mortgage rules are exacerbating the slump in Vienna's housing market, where a vibrant rental market offers an alternative to ownership. The stricter rules have dragged down offer prices to an average of €7,084 per square meter in May, with further declines expected.
Housing markets across Europe have been impacted differently by higher interest rates, with some areas hit hard while others have been propped up by a lack of supply and lagging issues from the global financial crisis. The Covid-19 pandemic has also impacted housing prices, with some governments implementing buying incentives to prop up their economies.
Areas affected by the global financial crisis have been less affected by the current downturn, while cities that surged on the back of a decade of cheap debt are suffering more. Vienna's residents are staying in rental apartments rather than buying as interest rates rise and inflation erodes disposable income.
Despite the recent drop, Vienna's housing prices remain elevated after a long run of gains. Loose financing conditions during the Covid-19 pandemic further fueled demand for housing, and a gage by Austria’s central bank suggests Vienna home prices were 40% above fundamental value at the end of 2022. However, credit markets have since tightened, and the volume of new mortgages issued to Austrian households fell by more than 60% in March from a year earlier, according to central bank data.
Looking ahead, the next few months will remain challenging for Vienna's housing market as demand remains lackluster and the market is cautious and slow to adapt. Stockholm's housing market has been particularly vulnerable to rising rates, while the latest data for Dublin shows that the once-hot market is cooling. The Irish government is considering the reintroduction of mortgage relief to help strapped consumers.
Despite a housing shortage, prices in Berlin have also slipped, and in the UK, where most mortgages are fixed for two or five years, more than 1.4 million Britons will be forced to refinance this year, putting an end to year-on-year increases in London. On the other hand, Milan and Madrid markets, hit hard by the last crash, are still rising, even if prices are down in real terms after a period of runaway inflation. Prices in Zurich have also climbed.
In Spain, the market shift is expected to start hitting supply as builders struggle with higher costs, with the Spanish housing market predicted to slow down in the second half of this year. However, property prices are expected to keep rising despite this.