I'm from EU and home prices in my city went up by 10% each year before pandemic, when pandemic started everyone said that home prices will go down, but it didn't, quite opposite it keeps rising.

Stock market went down, people losing their jobs, everyone is working from home (and most moved to smaller cities, because it's cheaper), rent price keeps falling, but home prices are rising.

What keeps home prices increase? Is it a bubble? What should happen to stop present home price increasing?

  • House markets are very localized. Where are you located?
    – Nosjack
    Mar 31, 2021 at 13:06
  • Poland/Warsaw, but anyway I saw the same is happening in US (Ex. NY, LA) Mar 31, 2021 at 13:08
  • 2
    I'm sorry, but we can not predict the future. My personal guess is that housing prices might go down again when the European Central Bank starts to take interest again, because at that point real estate loans will get more expensive and long-term capital investments other than real estate will become attractive again. But it could just as well not, because of a million other factors affecting the housing market, both in general and in your location, wherever that may be.
    – Philipp
    Mar 31, 2021 at 13:14
  • Unfortunately nobody knows. But my prediction is either that house prices will become affordable again, or we will all band together and guillotine the landlords. One of those two. Out of those two, I'd bet on the first one. I just don't know the timeframe. Mar 31, 2021 at 13:34
  • WRT COVID, not everyone lost jobs. Working from home means people pay less on things like commuting expenses, social distancing means less spent on things like dining out, bar-hopping, expensive vacations, &c. As a result, these people now have more disposable income to spend. E.g. in my area I see a LOT of newly-purchased cars on the road.
    – jamesqf
    Mar 31, 2021 at 17:13

2 Answers 2


The guarantee of what would cause home prices to stop rising would be an inflation spike serious enough to push the Fed into raising interest rates, which would put a major crimp in mortgage and refinance lending.

If you look at the history of housing prices, they always rise and fall on a somewhat cyclical basis,, although the reasons and timelines vary with little in the way of "predictability".

In the U.S., many areas of the country are seeing a huge speculative bubble, and the way you know that is to look at the ratios of people buying a house to live in versus people buying it as an investment (the data is out there on that). Whenever the investors heavily outweigh those looking to live in the homes they buy, you're looking at a speculative bubble that will inevitably burst, and rarely when or how anyone thinks.

This has always been the great fallacy of investing - that somehow people will know what to look for and they'll be able to get out ahead of all the other "suckers" in the market. Yeah, right.

I think there's another foreclosure crisis (strictly my opinion) on the horizon, linked to the moratorium on evictions and foreclosures. The debts of the renters/borrowers don't go away, they're just forestalled. Not everyone qualifies for assistance under the pandemic relief programs, and frankly there are many people who could afford to pay their mortgage/rent but have chosen to take advantage of the opportunity to not pay - what happens when the moratorium is lifted? The latest statistic shows 20% of renters and 16% of homeowners are at least 60-90 days past due on rent/mortgage payments, which is a major problem going forward.

The owners of rental properties who aren't getting rents still have to pay taxes, utilities, upkeep, and (most importantly) mortgages in many cases, and there's nothing that can stop that. What happens when they can't pay anymore?

At some point the piper's going to come calling on all of this unpaid debt - the banks aren't going to (and can't afford to) walk away from it, and people are going to have massive back debts they can't pay. The banks can't simply "reset" the loans without rewriting the mortgages, mainly because those loans have been sold as collateralized debt with existing payment schedules. I don't even want to hazard a guess as to how those would be adjusted!

The point is, there's no way anyone can, with any level of confidence or information, state what's going to happen or when in the real estate markets, but you can be assured that like with everything else, what goes up almost always comes down.

  • Everything rises and falls on a cyclical basis. It rises. Eventually it stops rising and starts falling. Eventually it stops falling and starts rising. etc. In fact it's tautological, otherwise it would have to either keep rising forever or keep falling forever. The key word is "eventually", it's not useful unless you can predict when it will happen. Mar 31, 2021 at 14:36

The premise of your question is already false. Home prices are not every increasing everywhere. There are regions that have crazy low housing prices, unfortunately there are not many good reasons to live there. People are moving away from those places, selling homes with few buyers available. These are the structurally weak areas, far from where the jobs are and unattractive for tourism (or retirement).
On the flip side, there are the areas where everybody wants to be. Major cities, lot of jobs, lots of attractive life, universities, tourism. High demand hitting limited supply is driving prices.

These are the basic factors. However, over the last decade some other factors have been emerging as well. Most people buy their own home using leverage, or as normal people put it: a mortgage. Interest rates are at a record low, with 0.8-1.0% on a 10 year fixed mortgage being pretty normal (in Germany). This means people can take a lot more debt while still paying the same sum every months compared to a higher interest mortgage. To give a small example with a 500 000€ mortgage and 18 000€ yearly (1500€ monthly) payment:

  • on 1% 5000€ initially go to interest and 13 000€ go to the principal.
  • on 4.25% means the payment is just enough to pay interest and not reducing debt in any way

There are few alternatives. With interest on bonds and savings accounts being basically 0 or even negative, many people turn to buy "something solid" and invest in their homes. A flood of news articles about rising rents just makes this seem so much more attractive than renting. Many people, especially in Europe, consider the stock market risky due to all its fluctuations. On real estate, those fluctuations are a lot hard to see as prices are not public and rarely updated. This is also causing a self-reinforcing effect. People see prices increase greatly and see a great deal everywhere. And when people hear about all those gigantic stimulus packages and debt the nations take on, they get fear of inflation. The obvious hedge against inflation for many people is real estate. Which has the added benefit that inflation would actually reduce your debt load.

Building homes is getting more and more expensive. This is not just the land that has skyrocketed lately, it is also the materials and all the regulations, especially energy saving regulation. In Germany a good rule of thumb is that the cost of building increases by 5% per year. Building new is not a cheap alternative to existing homes.

So when will this stop?
The costs of building are unlikely to decrease, as well as regulations with everyone doubling down on climate protection. The most important factor is interest rates as this has the double effect of creating more "safe" alternatives such as bonds and increasing the effective price someone pays

Why did the prices not fall due to Covid?
This is a very German-centric section and may strongly differ other places, especially those with a different social security system.
Many governments implemented policies that allow companies to keep their employees at a reduced workload with most or all of the cost payed by governments. This means that those people still can pay rent or make their mortgage payments and therefore there are no homes on emergency sale to beat the foreclosure wave. Also only few sectors are that hard hit by lockdowns. Sure, restaurants and cinemas are closed but those do not make up most of the workforce. Factories are still running with only few weeks closing in the spring of 2020. Most office jobs can just continue from home. What is even more important, the jobs most affected by counter measures are not the typical jobs for middle class home owners.
At the same time, interest rates have been dropping even more by central banks employing quantitative easing.

  • Excellent points, @Manziel!
    – RiverNet
    Mar 31, 2021 at 14:38

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