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A Look Ahead at the 2020 European Housing Market

The housing market has seen tremendous growth over the past decade, which leaves many homeowners, investors, and economists wondering if a bubble is forming.

Some say yes, while others anticipate continued growth in the coming months.

But does anyone know what 2020 has in store for the European market as a whole?

Trends and Predictions for 2020

Real estate is a finite commodity and will, by definition, always be a wise investment. However, it becomes a less safe place to stash cash and store investments during troubled economic times. With changes to the market coming, let's explore some of the top trends and predictions for 2020:

1. Low Interest Rates Spurs Continued Activity

"Despite political uncertainty and rising construction costs, PwC still foresees an active European real estate market in 2020," the company explains. "Investors are drawing a significant amount of comfort from the central banks' decision to maintain or cut interest rates – a notable change in direction from last year's report and probably the biggest factor supporting the general levels of optimism that emerged from this year's interviews."

Low interest rates alone may not be enough to support the housing market, but when you combine it with plentiful equity and debt, real estate income will retain its appeal to savvy investors who know how to obtain financing and structure deals.

2. But a Bubble is Forming

While low interest rates mean more activity, they're ultimately putting eurozone housing markets at a greater risk for bubbling up and, ultimately, boiling over.

"Munich is the most at risk of a bubble and Paris and Frankfurt entered the risk zone for the first time, UBS said as it released its annual global real estate bubble index report," MarketWatch mentions. "In fact index scores rose in all the cities in the eurozone UBS evaluated."

3. Likely U.S. Recession

The European and American housing markets always influence one another. And while the U.S. is experiencing unprecedented growth, experts believe a recession is quickly approaching.

According to Green Residential, "…home prices are likely at their peak right now, and prices will begin to fall in 2020 with an expected recession. This recession is likely to hit during Q1, after initial predictions that said it would hit in late 2019, and job numbers will fall when it does finally arrive."

If a recession hits in the U.S., it'll likely have a negative impact on European investor confidence. It could take a while for this to translate, but it'll eventually affect values – particularly in British markets.

4. Rising Construction Costs

According to PwC, more than two-thirds of survey respondents cite rising construction costs as having a major impact on their businesses in 2020. Labor and material costs will likely continue to experience 5 to 7 percent inflation. This may put a constraint on new construction and freeze certain projects in the development pipeline.

5. Affordability Crisis Continues

"A lack of affordable housing has been highlighted by Emerging Trends Europe as a serious problem in many European cities for years, and there is no end in sight," the PwC report continues. "61 percent of survey respondents are concerned about housing affordability in 2020 – up from last year – and half of respondents believe the problem will worsen over the next five years."

With all of the European political instability in today's climate, many are wondering how affordability will impact policies, regulations, and top-down decision making.

Rent controls are never a popular way to deal with housing affordability, but it's also one of the only ways to curb rapidly increasing values. Will governments step in and do something about the bubble, or will they wait for it to burst?

What Does the Future Hold?

Trying to predict the ups and downs of a multi-national real estate market is a lot like trying to anticipate the flight pattern of a bumblebee. One person's guess is as good as anyone's. However, it is helpful to periodically check in with what the experts think to get a feel for the overall sentiment. When economists collectively turn from bullish to bearish, trouble is undoubtedly around the corner.

For now, things seem fine. But expansionary markets don't last forever. Stay tuned.

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