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The housing market in Luxembourg has witnessed a significant decline in prices during the second quarter of 2023 following an announcement by the Central Bank of Luxembourg about raising interest rates to 3.9% for mortgage and consumer loans. The available data indicates a notable reversal in the housing market, which was previously known for its high prices and lack of affordability in Europe.
In recent times, there has been a slowdown in the growth rate of property prices, and it has even turned negative since the beginning of this year. As a result, the local housing market has observed an upsurge in rental prices. While some attribute this trend to the reforms implemented by the Grand Duchy since October, most analysts emphasize that the change is primarily driven by the increase in interest rates.
Luxembourg, being one of the countries with the highest housing prices in the European Union, has encountered numerous challenges due to this situation. One notable problem is that nearly half of the Luxembourgish workforce commutes daily from France, Belgium, and Germany.
Consequently, a phenomenon known as “housing refugees” has emerged, where many of these workers who are Luxembourgish citizens have been unable to afford housing in their own country. As a result, they have been forced to seek accommodation in neighboring countries. However, this influx of people searching for housing has also had an impact on the border regions of these neighboring countries.
According to the report, during the second quarter of 2023, the average prices of apartments have experienced a decline of 7.3%, while houses have seen a decrease of 5.5%This was preceded by a deceleration in growth that began in mid-2022 due to the intensification of the war in Ukraine and the European Union facing a crisis related to the cost of living and energy.
Despite this, the housing market in Luxembourg, which had experienced a significant surge in property prices during the pandemic years, reached its peak and started to decline. In the first quarter of 2022, both apartments and houses saw a substantial increase in value, surpassing 10%. However, this trend reversed at the beginning of 2023.
In the western region, the decline in prices was particularly striking, with apartments experiencing a devaluation of 14.1%, while houses decreased by 5.6%. In the central region, which encompasses the city of Luxembourg, apartment prices dropped by 4.2%, and houses saw a significant decline of 13.9%, resulting in an average price of approximately 1,041 million.
In contrast, the average rental prices have consistently and gradually risen over the past two years. At the beginning of 2022, there was a modest increase of 2.7% for apartments and 2.4% for houses. However, there was a significant shift in the latter half of the previous year, with the third and fourth quarters experiencing a substantial increase of 14.2% and 12.8%, respectively.
Unfortunately, 2023 has not brought much relief for renters, as evidenced by data from atHome.lu. During the first quarter, there was a further increase of 8.3% for apartments and 11.8% for houses. The average rent in central Luxembourg has now reached an astonishing 2,118 euros, a figure that is closely matched by rental prices in the western region.
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