The real estate market in 2023, once a harmonious space where buyers and sellers found common ground, has been disrupted by a series of formidable challenges. Factors such as the pandemic, inflation, rising interest rates, high mortgage rates, and the ongoing conflict in Ukraine have created a complex and demanding landscape in Europe's real estate markets in recent months and recent years. This situation has left sellers' and buyers' demands out of sync.
In this post, we will explore the underlying reasons behind this desynchronisation and look into valuable strategies you can use to survive and thrive in this new and ever-evolving real estate paradigm.
Where does the disconnect between buyers and sellers in the real estate market in 2023 come from?
To address the disconnect between homebuyers and sellers, you need to identify what caused this situation. First, the current cost of living crisis, higher interest rates and mortgage costs lead to a decline in the buying power of potential buyers and, therefore, housing affordability. A recent working paper by the International Monetary Fund analysed and compared the buying power of Europe's households between 2021 and last year and identified a decline of more than -20% on average. Things get dire for the UK, for whom the IMF paper found a nationwide decrease of more than -40%!
In a market where buyers have less and less money, it is difficult asking prices for properties like before. However, things are not as straightforward as you might think. What is true is that after a 10-year-long period of almost exponential house price growth (more than +45.9% in the EU, according to Eurostat), real estate experts see a slowdown on the European level. Yes, home prices are dropping, but not as much as expected. The latest data from Eurostat shows that between the beginning of the second half of 2022 and Q1 2023, there is a decrease of -2.1% in housing prices in the EU. This downtrend is a bit higher in countries like Sweden or Germany, where prices dropped by almost -7%.