Property prices up by 1% in the European Union, latest index shows

House prices increased by 1% in the European Union in the first quarter of this year compared with the fourth quarter of 2013.

But they fell by 0.3% in the Eurozone area, according to the latest House Price Index from Eurostat, the statistical office of the EU.

Among the EU Member States for which data are available, the largest annual falls in house prices in the first quarter of 2014 were recorded in Croatia with a decline of 9.7% while in Slovenia prices fell by 6.6% and Cyprus by 5.7%.

The highest increases were in Estonia with annual growth of 17.5%, followed by Latvia where prices increased by 10.4% and the United Kingdom where they were up by 8%.

The largest quarterly falls were recorded in Croatia where prices were down 2.7%, Luxembourg with a fall of 2.3%, and Slovenia where prices were down 1.7%.

Estonia also saw the highest quarterly price growth at 4.8%, followed by Sweden where prices increased by 2.4% and the UK with growth of 2.2% in the first quarter of 2014.

There was good news for some of the property markets that have been hardest hit by the economic downturn. For example, in Spain the quarterly decline in prices is down to just 0.3% and in Ireland the fall is down to 1.2% while Portugal recorded a quarter on quarter increase of 1.3%.

Compared with the first quarter of 2013 prices in Spain are down 1.6%, in Ireland they are up 7.8% and in Portugal up 4%.

Meanwhile, a separate report suggests that the highest growth rates among European metropolitan areas are likely to be recorded by those who have experienced deep downturns since the global financial crisis.

According to the report released by Moody's Analytics the best growth areas will be places such as Milan, Rome, Madrid and Manchester. Smaller cities like Dublin and Copenhagen that also suffered deep recessions during the financial crisis will offer good growth opportunities as well.

According to the report, the three year outlook is positive for most Tier 1 metro areas with a population of more than 2.5 million. Peripheral cities such as Madrid and Lisbon are finally beginning to see some labour market recovery.

'Thanks to a combination of wage cuts with other structural changes, labour markets in Spain and Portugal are now quite competitive and should enjoy strong job growth in coming years as the economy improves,' said Steve Cochrane, managing director at Moody’s Analytics, and author of the report.

But he added that in London and German metro areas growth will slow in 2015 and 2016 as they edge back from the recovery years toward longer term potential rates of growth.

Moody’s Analytics notes that Tier 1 metro areas with the most complex industrial structures have seen some of the greatest volatility over the past 10 years due to their exposure to office using industries as well the cyclical construction industries. Though large metro areas without extraordinary exposure to office-using industries, such as Rome and Katowice, have not been immune to the financial crisis, they have had more stable labour markets.

The second tier of metro areas with a population between 1.25 million and 2.5 million have generally experienced less volatility and stronger growth since 2000. The study also found that the long term growth rate of employment since 2001 in the Tier 2 aggregate is stronger, with employment today between 10% and 12% above that in 2001, versus 8% in the Tier 1 aggregate.
'Some of the medium sized metro areas, such as Zurich, Stockholm or Toulouse are very competitive and have strong growth prospects over the coming years. As the European economy improves, job growth will accelerate in many of these Tier 2 metro areas, particularly those with multiple industries,' said Petr Zemcik, director of European economics at Moody’s Analytics, and co-author of the report.

Overall, Moody’s Analytic expects a faster acceleration of office using industries in coming years as the economic recovery spreads more broadly across Europe. 'Job growth in London may slow from its pace of the past three years as the area’s financial services industry becomes increasingly cost conscious but elsewhere the growth of office using employment will remain stable or accelerate, as in a number of French metro areas,' said Zemcik.

Some of the hardest hit metro areas of the financial crisis such as Dublin and Madrid could well see rapid acceleration as their relatively low wage rates, combined with a skilled workforce, create opportunities for a labour market rebound.

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