Is there a second housing bubble in the make? Only now in the Northern and Western part of Europe?

If we look at the property development in for the last 10 years, we see a huge price increase.

On top of that, we see that in most European , including , part of this price increase took place after the disastrous United States’ in 2008.

And to remember you, it was this housing bubble in 2008, which threw the world into turmoil. So, haven’t we learned anything from this event? Why do we still see climbing ?

To figure that out, we first throw in some figures to support the above mentioned price increases.  (globalpropertychart.com)

In France, we saw a rise in prices over the last decade. In 2008 we saw a small decline, but in 2010 and 2011 prices went sharply up again, by 10%/ year.

In Switzerland we saw an increase in property prices of about 10%/year in 2010 and 2011.

In Germany we saw an increase in real estate prices of 10%/year in 2010 and 2011.

In Holland we saw the price of property in the last 10 years. Since 2 years we see deflating prices, but we don’t see a price-bottoming yet.

In Denmark we saw property prices double in the period from 2000 to 2008. Just like the Netherlands, prices went down a bit in the following years. But prices are still at dizzying heights.

In Belgium the housing prices almost quadrupled in the last 20 years. Also here you can observe increasing housing prices after the 2008 global financial meltdown.

In the Uk, housing prices have nearly quadrupled since 1995. We saw a fallback in prices in 2008, but this was followed shortly after by a rebound putting prices direction north again.

In Norway we saw property prices double in the past decade. And saw a blasting price increase of 30% since 2008.

In Iceland we saw property prices rise with 250% in the last twelve years. We saw a small dip in 2008, but prices rose again with an average of 11%/year since the bottom was reached in 2008.

In Austria we saw the housing prices went up with 60% in the last 6 years.

There are many reasons to explain the big price increase in Europe’s real estate market.

One of the main reasons is of course the cheap provided by central banks. Interest rates went down, so borrowing costs went down and so the amount one could borrow went up. Therefore buying property came within reach of many and property prices went up.

Further you saw strong investments inflows in different parts of Europe, because of the turmoil in the rest of the world. Like for example Switzerland and Norway, which saw huge amounts of money flown into the country because of its safe-haven statuses.

Also cities like London and Paris saw a lot of money being invested in their real estate market, because it’s seen a safe investment. Newly millionaires and billionaires from emerging markets see investments in property in cities like London and Paris as the new safe-haven investments of this era, like the bank accounts were in the past era.

Also smaller investors that tried to avoid taking risks by investing in the PIGGS countries, choose to invest in safer markets in the northern and western part of Europe.

So there are a lot of reasons that can be given to explain the sharp increase in real estate prices in Europe.

But what you can conclude is that most are based on money flows between weak countries to stronger countries. You see an increase in of property, because of problems elsewhere.

Or you see an increase in demand of property, because of the measures taken (like low interest rate), to solve problems elsewhere in the world.

Hugh investments flown in from India, China or other emerging markets can dry up. Or money flown in from the PIGGS countries, can fly back when the future in these countries look brighter again.

So taking that in mind, I think the best measurement to value real estate prices, is to look at the Price to income ratio or the price to rent ratio.

On the long run: It is not what someone is willing to pay for it! But it is what somebody can pay for it!

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