(May 18): Vienna became the weakest housing market among major European capitals, posting a double-digit decline that surpassed even hard-hit Stockholm, according to the inaugural Bloomberg City Tracker.

The Austrian capital posted a drop of 12.2% from peak levels a year ago, while Stockholm was down 6.4%, according to data compiled by Bloomberg.

By contrast, Madrid, Milan and Zurich showed gains. In the Austrian capital, where a vibrant rental market offers an alternative to ownership, stricter mortgage rules are exacerbating the slump, dragging down offer prices in May to an average of €7,084 per square meter. Further declines are anticipated.

Housing markets are on divergent trajectories across Europe as the impact of higher interest rates hits some areas hard, while a lack of supply and lagging issues from the global financial crisis prop up others.

The Covid-19 pandemic has also impacted housing prices as lockdowns encouraged people to move to bigger homes. Also, some governments implemented buying incentives to prop up economies.

To capture the latest trends, Bloomberg compiled figures from a range of providers to get per square meter prices for homes in nine key metropolitan areas. Some are asking rates and indicative levels, while others are official figures. Months of availability also vary. Levels in Vienna, for instance, are derived from an average of listing prices in the Austrian city’s 23 districts from Immopreise.at.

Europe’s housing markets have been thrown into turmoil since the end of the cheap-money era. Interest rate hikes by central banks increased mortgages just as a cost-of-living squeeze hits consumers. Still, the impact of higher borrowing costs has been uneven. What the City Tracker data show is that areas roiled by the global financial crisis have been less affected by the current downturn, while cities that surged on the back of a decade of cheap debt are suffering more.

With interest rates rising and inflation eroding disposable income, more Viennese families are staying in rental apartments rather than buying, according to the real estate agency s Real Immobilienvermittlung GmbH. Despite the recent drop, prices are still elevated after a long run of gains.

Loose financing conditions during the Covid-19 pandemic further fueled demand for housing, and a gauge by Austria’s central bank suggests Vienna home prices were 40% above fundamental value at the end of 2022. But credit markets have since tightened, and the volume of new mortgages issued to Austrian households fell by more than 60% in March from a year earlier, according to central bank data.

“The next months will remain challenging,” Martina Hirsch, managing director of s Real, said by email. “We expect continued lackluster demand as well as a market that’s cautious and slow to adapt.” Alongside Vienna, Sweden’s tendency for shorter term loans made it particularly vulnerable to rising rates, dragging down prices in Stockholm. But with rentals extremely hard to come by in the Swedish capital, declines have slowed in recent months.

The latest data for Dublin show that the once-hot market is cooling, with a decline in March of 2.4%. The Irish government is considering the reintroduction of mortgage relief to help strapped consumers. Despite a housing shortage, prices in Berlin have also slipped, declining by 1% in April.

In the UK, where most mortgages are fixed for two or five years, more than 1.4 million Britons will be forced to refinance this year. That’s put an end to year-on-year increases in London. On the other end of the spectrum, Milan and Madrid — markets hit hard by the last crash — are still rising, even if prices are down in real terms after a period of runaway inflation.

Prices in Zurich have also climbed. In Spain, the market shift is expected to start hitting supply as builders struggle with higher costs. “The Spanish housing market will slow down in the second half of this year,” said Borja Garcia-Egotxeaga, chief executive officer of Spanish homebuilder Neinor Homes SA. “But property prices will keep on rising.”