OREANDA-NEWS.  The analyses of price development and financial stability carried out by the European Central Bank (ECB) include information about changes in non-financial assets on a country by country basis.This concerns statistics on residential property prices, which have a significant effect on household spending and indebtedness, the mortgage market, investment development and ultimately also on financial and monetary stability in the medium and long term.

As regards monetary stability, the development of residential property prices has a significant impact on economic activity and on price changes overall. Growth in apartment prices is providing a boost to economic activity since investment in housing is on the rise and the wealth effect generated by increasing residential property prices is stimulating household consumption. That said, the intensity with which these effects are being felt varies between countries and depends on the extent to which houses and apartments are in private ownership.

From the view of financial stability, real estate is one of the main forms of security for loans. That is why a downturn in real estate prices together with a deterioration in the ability of households to make loan repayments could threaten the stability of the banking system and give rise to serious macroeconomic consequences.

The development of real estate prices is being evaluated by the ECB Governing Council at half-yearly intervals. A residential property price indicator for the euro area is compiled from non-harmonised national data, obtained in cooperation with the national central banks. Besides reflections on the data sources for real estate prices, the ECB Monthly Bulletin has successively published a comparison of the development in residential property prices and the Harmonised Index of Consumer Prices (HICP) for the euro area; in addition, it has recently brought a more detailed comparison according to selected aspects. Since June 2005, the aggregated indicator of real estate prices has been incorporated into an expanded table in the section Prices, although the most recent data is for 2004.