By Hans Bentzien
FRANKFURT (Dow Jones) — Karsten Junius, chief economist at J. Safra Sarasin, expects less favorable financial conditions and high costs to slow down the construction sector in the euro area. “Their impact is not yet visible in the data released so far for the construction and real estate sectors, but it is only a matter of time before they slow activity and price developments,” Junius wrote in a comment.
Soaring construction costs coupled with falling affordability would likely result in falling nominal land prices and lower real home prices in the coming quarters. “The existing excess demand for living space – especially in urban areas – will cushion the adjustment,” says the economist.
Junius assumes that there will be a “soft landing” on the real estate market – among other things because borrowers are less indebted than before the real estate crash of 2008, so that there is no threat of a wave of emergency sales. “We therefore conclude that the most important impact of tighter ECB monetary policy will be a reduction in future construction activity.”
According to Junius, part of this can already be seen in survey data. Both the EU Commission’s construction survey and the purchasing managers’ index surveyed in this sector have recently fallen – albeit not to below-average values so far. “We expect sentiment in the construction and real estate sectors to continue to fall in the coming months.”
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(END) Dow Jones Newswires
May 20, 2022 03:48 ET (07:48 GMT)