In 2025, the European real estate market is demonstrating cautious signs of recovery despite ongoing challenges. Following a period of economic uncertainty and rising costs, moderate growth is anticipated; however, issues related to affordability and supply remain significant, particularly in major urban housing markets.
After experiencing declines in housing prices during the latter part of 2023, the residential market within the European Union (EU) began to rebound in 2024. This resurgence continues a long-term trend that started in 2013, which was further accelerated by the repercussions of the COVID-19 pandemic. The minor downturn in 2023 was nominally slight but more considerable when analyzed for inflation and compared to household disposable income levels. By the conclusion of 2023, nominal prices had largely bounced back, paving the way for a more pronounced increase throughout 2024.
Data reveals that by the last quarter of 2024, nominal house prices in the EU were up by 4.9% compared to the previous year, surpassing the highs observed in mid-2022. In real terms, the growth was more modest at 2.1%. Additionally, transaction volumes in the housing market rebounded, reaching levels akin to those recorded prior to the pandemic.
The recovery trajectory was not uniform across member states, with some—such as Bulgaria, Hungary, Portugal, Spain, the Netherlands, Poland, and Croatia—experiencing annual price increases exceeding 10% by the end of 2024. Conversely, countries like Sweden, Germany, Austria, and Luxembourg, which had seen sharper price corrections in 2023, reported only modest growth. France and Finland were exceptions, continuing to experience year-on-year price declines.
The slight dip in housing prices during 2023 was largely attributed to a significant reduction in household borrowing capacity, fueled by rising mortgage rates that outpaced income increases. As these rates started to moderate in 2024, borrowing capacities improved more swiftly than home prices, although affordability still remained substantially inflated compared to historical averages. Over the previous five years, real house price increases have outpaced the growth rate of borrowing capacity, complicating home buying prospects for many households.
Concerns over affordability extend beyond merely accessing mortgages. Information from the European Parliament indicates that between 2015 and 2023, EU housing prices surged by an average of 48%. By 2023, a striking percentage of urban (10.6%) and rural (7%) households allocated over 40% of their disposable income to housing, highlighting a growing strain on financial resources.
Further complicating the affordability crisis is a significant undersupply of housing in Europe, estimated at about 9.6 million homes—approximately 3.5% of the existing housing stock. Current construction and permitting levels are falling short of demand, operating at roughly 64% of what is necessary. Unless there is a substantial increase in building efforts, it could take over four years to address this gap. In 2025, it’s expected that the rising costs of renting and a trend towards increased privatization of the housing market will only intensify affordability challenges for renters, putting additional pressure on policymakers.
Looking forward, projections suggest an uptick in household incomes—an essential factor in boosting borrowing capacity. Anticipated real wage growth of 1.6% in 2025 followed by 1.1% in 2026 indicates potential for increased demand, which could stimulate further housing investments. However, the delivery of new housing units is likely to be sluggish due to elevated construction costs, stringent financing conditions, land-use regulations, and environmental constraints. Consequently, both affordability pressures and supply shortages are unlikely to alleviate in the near future.
Overall, while signs of a recovery in the European real estate market are emerging, significant obstacles related to supply and affordability remain prevalent, making the future landscape of the housing market complex and challenging.