"ECB Rate Cuts Expected to Drive Housing Market Growth in 2025"

By 2025, the European Central Bank's (ECB) anticipated rate cuts are predicted to stimulate housing prices significantly. Analysts from Bankinter forecast housing price increases at a pace exceeding inflation, with 2024 expected to close with price growth above 8%, compared to the earlier estimate of 6%.

Looking ahead, the analysis predicts a 5% rise in housing prices for 2025, up from the previous 4% forecast. Beyond that, increases are expected to moderate gradually, reaching over 3% in 2026 and converging with inflation at around 2% by 2027. Bankinter’s analysts explain that rate cuts will act as a catalyst, alongside a robust labor market, limited housing supply, and steep rises in rental prices.

Is Another Housing Bubble Forming?

After a decade of continuous price growth—culminating in a 56% increase since the 2014 low—questions about a potential housing bubble have resurfaced. However, Bankinter’s experts are confident that no such bubble is forming.

"The housing market remains underpinned by solid fundamentals," they state, highlighting accessibility ratios better than historical averages, supported by over 10% growth in household disposable income in recent years. Furthermore, effort rates—measuring the proportion of income spent on housing—are at reasonable levels and are likely to decline.

The relationship between housing prices and average household income is expected to end 2024 at approximately 7.3 times, significantly below the 2007 peak of 9.5 times. These levels are predicted to remain stable in 2025 despite rising house prices, thanks to growing gross disposable income driven by job creation and wage increases.

Factors Supporting Housing Demand

Additional factors fueling demand include declining mortgage costs and persistent supply shortages. The proportion of household income allocated to mortgage payments has already started to decrease, currently at 36%. Analysts predict this figure will fall below the historical average of 35% in the coming months due to the anticipated drop in the Euribor.

On the supply side, the market is experiencing significant constraints. Annual housing deliveries are expected to remain below 100,000 units over the next two years, while demand could surpass 200,000 units annually. "This sharp supply-demand imbalance contrasts with the oversupply seen during the last real estate bubble," the report concludes.

These dynamics, combined with economic growth and favorable labor market conditions, are expected to sustain housing market momentum, even as price increases begin to moderate in the coming years.