The key chart
(Source: ECB; CMMP)
The key message
The euro area (EA) money sector continues to send a clear message of slowing mortgage demand in 4Q22, reflecting sharp slowdowns in Germany and France, the region’s two most important markets. While this may be disappointing for the EA growth outlook, it is more welcome from a financial stability perspective, given the vulnerabilities flagged in both markets in CMMP analysis over the past two years.
Negative for growth, but…
(Source: ECB; CMMP)
The monthly EA mortgage flow was €9.3bn in November 2022, up from €8.4bn in October 2022 but well below the recent peak of €30.1bn in June 2022. The 3-month moving average fell to €11bn, the lowest level since May 2020 (see chart above).
(Source: ECB; CMMP)
The annual growth rate in the outstanding stock of EA mortgages has slowed from the recent peak of 5.8% YoY in August 2021 to 4.6% YoY in November 2022. German and French mortgage demand are the main drivers of aggregate EA demand (see chart above). They contributed 1.8ppt and 1.2ppt of the total 4.6% YoY growth, for example.
(Source: ECB; CMMP)
German mortgage growth has slowed from 7.2% YoY in August 2021 (2.0ppt contribution) to 5.9% YoY in November 2022, however. French mortgage growth has slowed even faster from 8.2% YoY in August 2021 (2.1ppt contribution) to 4.9% YoY in November 2022 (see chart above). In contrast, annual growth rates in the Netherlands and Italy, the third and fourth largest contributors, was higher in November 2022 (4.8% and 4.7% YoY respectively) than in August 2021 (3.4% and 4.3% respectively).
While this may be disappointing news for the growth outlook, it is more welcome from a financial stability perspective, given the vulnerabilities flagged in both markets.
CMMP analysis highlighted RRE vulnerabilities in Germany based on the combination of house price and lending dynamics, the extent of overvaluation and the lack of appropriate macroprudential measures back in November 2021 and warned of the risks associated with the rate of growth and affordability of French household sector debt in January 2022.
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.