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Italy house price crash: Italian property costs had yet to recover 2008 crash losses when cost-of-living crisis hit

By Fitri Wulandari

Edited by Georgy Istigechev

14:39, 20 October 2022

A view of street artiste Banksy's work of a migrant child appears on the outer wall of a house overlooking the Rio Ca Fossari,
Average housing prices in Italy are still low compared to the rest of the EU – Photo: Riccardo Fabi / NurPhoto via Getty Images

Italy’s house price crashed in 2008 as the euro debt crisis took a toll on the country’s economy. More than a decade on, house prices in Italy remain the lowest among the European Union’s member states – although prices have started to recover from the Covid-19 related slump in 2020.

However, rising inflationary pressures stemming from the Russia-Ukraine war that has elevated energy prices and the European Union Central Bank’s late but hawkish rate hikes have clouded Italy’s housing market recovery. 

Will Italy’s house price crash again this year and beyond?

What is a housing crash?

A housing market crash is explained as a sharp drop in house prices following a period of high prices. 

A housing market crash often follows a housing bubble, which occurs when the average price of a home is significantly higher than its underlying value, typically due to rising demand and limited supply. Low mortgage rates, increased welfare, and easy access to bank loans are just a few of the factors that can drive up housing demand. 

The bubble may burst if construction companies continue to build new homes even after demand has begun to dwindle and sales have slowed.

When a central bank raises its benchmark interest rate, it can make finding new buyers more difficult. Higher interest rates can lead to increased mortgage costs, causing financial hardship for current homeowners. Homeowners who are unable to pay their mortgages may face defaults and foreclosures, resulting in an increase in the number of homes on the market.

Economic downturns, particularly recessions, can result in job losses, decreased savings and fewer available jobs, all of which reduce demand for housing.

History of house crashes in Italy 

According to the Global Property Guide, house prices in Italy fell 1.9% from the second half of 2008 to 2011 amid the global financial crisis caused by subprime mortgage defaults in the US. The decline in house prices worsened dramatically from 2011 to 2014 as the euro sovereign debt crisis affected Italy’s sluggish economy.

According to historical data from Italy’s statistics office, Istat, the country’s House Price Index (HPI) dropped from 119.7 points in 2011 to 100 points in 2015.

The introduction of a third property tax, Tassa sui Servizi Indivisibili (TASI), also hindered recovery, it said.  

HPI tracks the evolution of prices in the Italian housing market for all residential properties purchased by households (flats, detached houses, terraced houses, etc.), both new and existing, regardless of whether they are purchased for personal use or as an investment.

House prices in Italy were steady from 2015 to the third quarter of 2020, according to the Global Property Guide.

Several tax measures were introduced by the government to boost demand, including scrapping TASI in 2016 and a special tax privilege for pensioners who decided to retire to southern Italy. 

The tax measures and low housing loan rates helped the housing prices to recover from 2021. 

Strong 1H performance

The housing market in Italy showed strong performance in the first half of this year, drawing record investment, although prices were still below 2010 level.  

In the second quarter of 2022, Italy’s HPI rose by 2.3% to 108.1 points compared to 1.7% increase in the previous quarter, according to preliminary estimates by the country’s statistics office Istat reported in September

italy house price index (2012-2022)

In its Italy property market review in April, property firm Knight Frank wrote that the country’s housing market took a turn in 2021, attracting interest from international buyers trying to escape Covid-19 lockdowns.

Kate Everett-Allen, Knight Frank’s head of International Residential Research, wrote:

“For the lockdown-weary buyer Italy delivers on all fronts. Space, views, culture, history, good food and a healthy lifestyle; all are in abundance. And for a new breed of hybrid worker, labouring under the dappled shade of a cypress tree is an appealing alternative to a cramped spare room, particularly for Vitamin D deficient northern Europeans.”

Global property service firm Cushman & Wakefield noted in its 1H 2022 Italian real estate market review that the residential sector drew record investment of €580m on the back of strong economic recovery from the Covid-19 pandemic and rebounded hospitality activities. More than 90% of the investment came from foreign buyers. 


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Signs of weakness loom

Based on the office’s data, house prices in Italy have increased for  six consecutive quarters since the last quarter of 2020.

However, from 2010 to the second quarter of 2022, house prices in Italy have dropped around 8.5%, according to the latest data from the European Union’s statistics office, Eurostat. Italy, Greece and Cyprus are the only three EU out of 27 member states where house prices decreased in the reviewed period. 

The Bank of Italy’s Housing Market Survey, released in August, noted the housing market in Italy softening, which marked a notable change as house prices in Italy appeared to stabilise in the second quarter of 2022.

The share of real estate agents that sold at least one property, while still high, has fallen to 84.9% in the second quarter of 2022, compared to 87.6% in the first quarter, according to the survey by the country’s central bank, which polled 1,465 real estate agents.

The share of sales financed by a mortgage loan has dropped to 67.5% in the second quarter, compared to 69.7% in the previous quarter. New sale listings also failed. 

Rising energy prices, particularly gas, and the high interest rate environment are the main factors slowing the housing market in Italy. Russia has been withholding gas supply to Europe to retaliate against Western nations’ sanctions over its invasion of Ukraine, which pushed up energy prices. As a result, consumers are continuing to struggle with high electricity bills, further eroding their purchase power.  

“These assessments factor in higher energy prices and the invasion of Ukraine, which are believed to contribute to a downward pressure on both the number of potential buyers and house sale prices,” according to the survey. 

Participants in the survey expected house prices in Italy to decline in the current quarter, after having remained in positive territory for three quarters. 

The annual Consumer Price Index (CPI) inflation in Italy rose 8.9% in September, compared to an 8.4% increase in August, Istat announced on 17 October. The Italian harmonised index of consumer prices (HICP) increased by 9.4% on an annual basis in September, compared to 9.1% in the previous month. 

Inflation measured by HICP had a greater impact on households with lower purchasing power (+11.6%) compared to those with greater spending power (+7.6%).

Domestic political turmoil, with a new prime minister from the 25 September election set to take office soon, as well as the European Central Bank’s (ECB) aggressive rate hikes, were expected to add pressure on Italy’s housing prices. 

The ECB has increased the policy rate twice since it started its tightening cycle in July. The main refinancing rate has been hiked by 125 basis points (bps) to reach 1.25% in September – up from a previous rate of zero. 

Raffaella Pinto, Cushman & Wakefield’s Head of Business Development in Milan, wrote on 1 August:

“For real estate it means that the low-rate environment is a memory of the past and investors and banks are preparing to face a not-negative interest rate scenario for the upcoming months.”

Italy housing market predictions for 2022, 2023

As of 20 October, TradingEconomics’ housing market predictions in Italy expected the country’s House Price Index to average 105 points by the end of this quarter. In the long-term, the service expected Italy’s HPI to trend around 110 points in 2023.

“Uncertainty surrounding inflation, the worsening of households’ income purchasing power, continuous surge on energy prices, construction costs and an aggressive ECB Policy on interest rates - which increased by a further 75bps on 8 September - are just some of the challenges investors must face,” said Cushman & Wakefield’s Pinto on 25 September.

Cushman & Wakefield did not provide forecasts for Italy’s future house prices.

Final thoughts

TradingEconomics suggested Italy’s House Price Index to have a modest rise in 12 months’ time. Analysts in this article indicated while house prices may decline, it did not suggest Italy’s house price crash was imminent.

Remember that analysts’ Italy’s housing market predictions can be wrong. You should always conduct your own research before trading, looking at the latest news, technical and fundamental analysis and a wide range of analyst commentary.

Bear in mind that past performance does not guarantee future returns. And never trade money that you cannot afford to lose.


What does the housing market crash mean?

A housing market crash refers to a sharp drop in house prices due to ample supply of residential homes while sales wane due to various reasons. Higher mortgage rates and economic slowdown which reduce purchasing could result in a drop in house sales, subsequently reducing house prices.

Will house prices drop in Italy?

Data aggregator TradingEconomics forecast indicated the House Price Index in Italy could still post a modest increase. Participants in the Bank of Italy’s market survey, however, expected house prices to fall due to rising interest rates and high energy costs.

Remember that analysts and algorithm-based forecast services can be wrong in their predictions. Always do your own research before making investment decisions. And never invest or trade more than you can afford to lose.

Is buying property in Italy a good investment?

Whether or not buying a property in Italy is a good investment depends on your risk tolerance, trading goals, and portfolio composition. Like any other investments, you should always conduct your own research on the property market in Italy by reading analysts’ notes and recent news on Italy. And never trade money you cannot afford to lose.

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

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