FRANKFURT, Dec 11 - Housing prices in the euro area have rise by about seven percent per year since the euro was launched in 1999, compared with about 1.5 percent from 1994 to 1998, the European Central Bank said on Thursday. "Data available for 2003, referring mainly to the first quarter, show that residential property price increases remained strong in the euro area as a whole," the ECB said in its December monthly bulletin. The central bank said residential property prices are an important part of its analysis of inflation risks. Earlier this year it said monetary policy makers must pay attention to forces driving house prices and rental costs in setting monetary policy because they could undermine stable prices. The boom in house prices in the last four years compared to the previous trend was due to several factors common to euro zone countries, as well as national differences.
The delayed impact of growth and employment gains from 1997-2001, a drop in interest rates in many countries since the euro was introduced, the shifting of investment from share markets to real estate and the liberalisation of housing credit markets have all spurred house prices, the ECB said. "Although almost all euro area countries have experienced an increase in residential property prices since 1999, the extent of the observed price changes has varied largely from country to country," the ECB said. Spain, Ireland, the Netherlands, Greece and France all saw above-average price increases between 1999 and 2002 compared with the euro area average. The launch of the single currency, which entailed a convergence of interest rates throughout the 12-nation euro area, likely contributed to the surge in housing prices in places like Ireland, Spain and Greece, where interest rates had previously been high. Price changes were below average in Austria and Germany over the last four years, which may reflect the more limited scope of interest rate convergence to stimulate the housing market.//