In 2025, Europe’s real estate market is showing signs of cautious recovery after a period marked by economic uncertainty and rising costs. While moderate growth is expected, affordability and supply issues continue to weigh on the sector, especially in housing markets across major cities.

After falling in the second and third quarters of 2023, housing prices in the European Union resumed their upward trajectory in 2024. This marks a continuation of the long-term trend that began in 2013 and intensified in the wake of the COVID-19 crisis. The decline seen in 2023 was mild in nominal terms but more pronounced when adjusted for inflation and relative to household disposable income. By the end of that year, nominal prices had broadly recovered, setting the stage for a more vigorous increase throughout 2024.

According to data analyzed by TradingPedia, by the fourth quarter of 2024, nominal house prices in the EU were 4.9% higher than a year earlier, surpassing their mid-2022 peak. In real terms, which take into account changes in the cost of living, the increase was more modest at 2.1%. Transaction volumes also recovered during this period, returning to levels comparable with those observed before the pandemic.

However, the scale of the rebound varied significantly across member states. Bulgaria, Hungary, Portugal, Spain, the Netherlands, Poland, and Croatia each recorded annual price growth of more than 10% in the final quarter of 2024. In contrast, Sweden, Germany, Austria, and Luxembourg – countries that had experienced steeper corrections in 2023—saw only modest price increases. Meanwhile, France and Finland continued to post year-on-year declines.

Source: European Commission

The slight dip in EU housing prices in 2023 was primarily driven by a sharp drop in households’ borrowing capacity, resulting from steep increases in mortgage rates that outpaced income gains. However, as rates began to ease in 2024, borrowing power rebounded more rapidly than home prices – a shift noted by the European Commission, though affordability still remains well above its long-term average. Across much of the EU, real house price growth has outstripped improvements in borrowing capacity over the past five years, making it increasingly difficult for households to qualify for or afford homes via mortgage.

Source: European Commission

Affordability concerns are not limited to mortgage access. The European Parliament highlights broader cost pressures: between 2015 and 2023, house prices in the EU increased by an average of 48%, and in 2023 alone, 10.6% of urban households and 7% of rural households spent over 40% of their disposable income on housing. These figures underscore a significant strain on household budgets, even as borrowing conditions improve.

Source: European Parliament

Compounding these affordability issues is the deepening structural undersupply of housing. CBRE estimates that Europe’s housing shortage has now reached approximately 9.6 million homes – about 3.5% of the existing housing stock – and warns that current permit and construction levels are insufficient to meet demand, operating at roughly 64% of what’s needed. Without a sustained increase in building activity, it may take over four years just to close this gap. Furthermore, CBRE projects that rising rental costs and increasing privatisation of housing will further exacerbate affordability challenges for tenants in 2025, adding pressure on policymakers to intervene despite the risk that rent controls could potentially discourage supply.

Source: Media Assets

Looking ahead, household incomes are projected to rise – a key driver behind borrowing capacity, supported by anticipated real wage increases of 1.6% in 2025 and 1.1% in 2026. This suggests demand may continue to build, potentially spurring more housing investment. Yet, the actual delivery of new homes will lag. Elevated construction costs, tight financing conditions, land-use regulations, and environmental constraints will continue to hinder supply growth, meaning affordability pressures and supply shortages are unlikely to ease in the near term.

Source: European Commission