ECB survey reveals housing Sharpe ratio recovery, points to investment growth
The European Central Bank's Consumer Expectations Survey introduces a new housing Sharpe ratio, indicating a marked improvement over the past year. This recovery suggests a moderate increase in housing investment in the near term.
Measuring housing's perceived value
The ECB introduces a new housing Sharpe ratio, a quantitative indicator derived from household house price expectations and risk-free interest rates.
This ratio measures the perceived financial attractiveness of housing investment.
It improved markedly over the past year, recovering steadily since late 2023, though remaining below its early 2022 peak.
By September 2025, it had risen slightly above its sample average, mirroring a similar recovery in the qualitative 'housing as a good investment' indicator.
Behind the ratio's rise and future outlook
The housing Sharpe ratio's fluctuations primarily reflect changes in house price growth expectations and the risk-free interest rate.
The increase since July 2023 was driven by rising house price expectations and a drop in the risk-free rate as monetary policy normalized.
The close correlation between the housing Sharpe ratio and actual housing sales suggests a further moderate recovery in housing investment, supporting a positive near-term outlook for housing sales and home goods consumption.