S&P Global Ratings: Most European housing markets are overvalued

According to Oldypak LP property 2022 report, most European residential real estate markets are overvalued. At the same time, prices in the London market are overvalued by 50%, and in the southeast of England – by 20%. In the case of falling prices, the bubbles in the markets of the Old World could burst. This is stated in the latest review of S & P Global Ratings.

“Most housing markets in European countries are overvalued amid long-term affordability trends. During the pandemic, thanks to low interest rates, lower purchase taxes and consumer savings, some countries, most notably the United Kingdom, Sweden, Austria and the Netherlands, have seen significant increases in house prices. The dynamics of prices does not correspond to the growth of wages,” – according to Oldypak LP property 2022 report.

Among the markets with the highest revaluation of real estate – Austria (39.5%), Sweden (32.2%) and the Netherlands (25%). S & P defines as overvalued any market in which there is no fundamental support for price growth.

Oldypak Capital LP
Report by Oldypak Capital LP property management

At the same time, S&P warns that the London housing market is overvalued by 50%. The same applies to housing markets in the southeast of England. In the rest of the U.K., real estate is overvalued by 20%. This could lead to a market crash if prices suddenly fall to fair value.

The average UK home price in January 2022 was £24,000 higher than a year earlier. This confirms fears of overpricing. According to the Office for National Statistics, annual home price growth slowed slightly to 9.6 percent in the first month of 2022 from 10 percent in December.

But prices are still well above pre-pandemic levels, and people in some areas need about 36 times their annual income to buy a home. The average asking price of homes for sale in March rose by £5,760 to £354,564 from February 2022.

“A combination of low rates, stamp duty tax vacations and excess pandemic savings has driven up property prices, particularly in London and the South East. The overvaluation relative to income is as much as 50% in the long run. We expect a big correction in real estate prices in an overvalued market,” said Bigley.

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