Vienna is more likely to face a slow correction to its overvalued housing market than a sudden shock, according to a report from Austria’s central bank.
(Bloomberg) — Vienna is more likely to face a slow correction to its overvalued housing market than a sudden shock, according to a report from Austria’s central bank.
The low risk of forced sales and tempered supply from a receding construction industry make a sharp drop in home prices unlikely, economists at the Austrian National Bank said in a report published Wednesday. While further moderate declines can’t be ruled out, the market may more likely follow a scenario similar to the 1990s, when strong appreciation was followed by a long phase of stagnation.
“The risk of sudden sharp price corrections is currently considered to be rather low,” the report said, adding that high inflation, monetary and economic risks mean the development of real estate prices is “subject to a high degree of uncertainty.”
The projected trajectory would lower housing costs on an inflation-adjusted basis and help reduce pressure on a market that’s estimated to be about 37% more expensive than its fundamental value.
The economists prepared the note in response to the inaugural Bloomberg City Tracker report, which showed Vienna listing prices slumping an annual 12% in May, according to data from the immopreise.at website. That left the Austrian capital with the largest decline among nine European cities in the survey.
Read More: Europe’s House Price Woes Are Coming for Vienna: City Tracker
The Austrian National Bank said first-quarter data that include offer and transaction prices pointed to a stagnating market. Residential property in Vienna still cost 0.8% more in the January-March period than a year earlier. The national bank doesn’t publish a monthly breakdown of data.
Among risk-mitigating factors, the central bankers pointed to debt volumes and a loan servicing burden that’s about half the European Union average when compared to households’ income.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.