Housing Market in Luxembourg

The latest IMF’s report on Luxembourg says: “Against the backdrop of an expanding population, low interest rates and binding supply side constraints, residential real estate price-to-income ratios in Luxembourg have become elevated by historical and global standards (Figure 6). After a marginal decline in 2009, nominal home prices have since increased 30 percent (or 22 percent in real terms), a period over which real disposable income of the local population has been flat, though GDP and employment growth continued.

Supply bottlenecks make housing less affordable to residents. Analysis based on an empirical model of real house prices suggests that real house prices were overvalued before the global financial crisis because house prices were growing significantly faster than a trend (explained by population growth). Since then, their evolution has become more aligned with real GDP and population growth, in spite of the flat disposable income of the resident population while the low interest rate environment has improved their borrowing capacity. This analysis suggests that supply has only partially adjusted to the rapid growth of demand.”

Fig6

 

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