Macro roundup: Apartment prices surge higher
House prices in Athens approach their pre-financial crisis record
Greece’s housing boom continues to gather pace as apartment prices in the first quarter surged 14.5 percent from a year earlier.
That’s the biggest increase in the data series, released by the Bank of Greece, and is the fourth straight quarter where the annual growth rate is at a record level. The surge is even higher in Athens and Thessaloniki, the country’s second city, where the increases were 16.5 percent and 16.1 percent respectively.
In the capital, apartment prices are now just 7.1 percent lower than they were at their peak in 2007.
While this is good news for home owners in Greece, the implications for the economy as a whole are far more ambivalent — starting with renters who are getting squeezed out of affordable housing, especially in the capital.
But the other question is what implications this has for financial stability. The term “bubble” gets overused generally. When apartment prices started rising in Greece a few years ago, the term didn’t seem apt then. But when prices are now almost back to their pre-crisis levels — when they certainly were in a bubble — and that increase isn’t matched by a similar recovery in other metrics, then that at least begs the question of whether we’re in a bubble again.
To put it in perspective, the disposable income of Greek households, unadjusted for price changes, fell 33 percent during the crisis from its peak, and still remains 20.7 percent lower than that peak.1 Apartment prices collapsed 42.4 percent during the crisis for the country as a whole, but have now recovered to within 14 percent of their pre-crisis peak. The swings are even more pronounced in Athens, where the peak-to-trough drop was 44.7 percent. Prices in the capital have surged 68 percent from their 2017 low.
Long-time readers will know that something we’re concerned about at Grecology is that a wide current account deficit along with growing private sector indebtedness — the situation Greece is currently in — is a pattern associated with rising financial fragility. A boom-and-bust housing cycle is one classic way in which this pattern often plays out.
One big difference between now and the pre-crisis housing bubble is that the increase then was fuelled by the mortgage lending boom of the early years of Greece’s euro membership. The picture is completely different now, with mortgage lending contracting continuously for almost a decade.
The two major factors that have commonly been linked with Greece’s current house price boom is the rise of short-stay tourist accommodation, like Airbnb, and foreign buyers taking advantage of the country’s Golden Visa scheme.
Foreign investment
Turning back to our sectoral balances theme, foreign direct investment arising from the Golden Visa scheme is part of the financing of Greece’s current account deficit — albeit a small one. FDI inflows reached a record high of 6.38 billion euros last year, and real estate investment amounted to almost a third of that.
The Bank of Greece also this week released balance of payments data for April, which showed that FDI inflows in the first four months of the year amounted to 1.13 billion euros, compared with 3.26 billion euros in the same period of 2022. This is in line with what we noted last month: that FDI inflows seem to be reverting to their trend.
We don’t have figures yet for this year showing what proportion of the inward investment was in the real estate sector. However, news reports suggest that apartment buying stemming from the Golden Visa scheme remains strong. In fact, Kathimerini noted this week that upcoming changes to the regulations that will make it harder to obtain a residence permit is a part of what drove prices in the first quarter, as investors are rush to buy before the opportunity ends.
Other data
Greece’s current account deficit in April was 1.78 billion euros, compared with 1.66 billion euros in the same month of 2022
The deficit in the first four months of the year narrowed to 5.63 billion euros, from 8.64 billion euros in the same period of 2022
The goods and services deficit in April narrowed to 1.45 billion euros from 2.14 billion euros
April’s current account increase from a year earlier was due to a deterioration in the primary and secondary income balances
Next week’s key releases
Monday, June 26:
Jan-May central government budget execution, final (Finance Ministry)
Wednesday, June 28:
May bank lending and deposits (Bank of Greece)
March building activity (Elstat)
Thursday, June 29:
June economic sentiment indicator (European Commission)
Friday, June 30:
May unemployment (Elstat)
April retail sales (Elstat)
Correction: I originally wrote that disposable income was still 26.1 percent off its pre-crisis peak, after I accidentally measured using the 2021 figure.
Still, average Athens price in downtown Athens is €1,800 per sqm.
Lisbon is over €5,000, Paris over €10,000-- Tel Aviv also around €10,000.
Also, sure Athens prices may be back to 2007 levels (barely), but unless I'm mistaken the index is nominal, and CPI is up ~26%, so in real terms they're down by about that much. Also as other have mentioned very little construction in the past 10 years means constrained supply.
All of which goes to say I'd be very long Greek RE and Athens in particular.
Great piece! I've been thinking about the housing price boom myself for some time now. Possible reasons: short-stay and Golden Visa (as mentioned in the article) plus (close to) zero supply in the last many years (i.e. no new houses) and the grey economy coming back with a vengeance, 'replacing' mortgage lending as a funding source. It's a crazy housing market out there.