In recent years, there was a broad-based recovery in Europe’s housing markets. Since the second half of 2016, a majority of EU countries are again recording annual house price increases of above 5%. The price rally has prompted public debate as to whether EU property markets are overvalued. In general, fundamental factors, such as disposable income, interest rates and demographics, can explain much of the recent rally seen in the EU28. The upturn can, in particular, be linked to the prevailing low interest-rate environment and to the economic recovery that started early 2013. Looking forward, the sustained positive growth environment will likely provide sufficient counterweight to rising interest rates. Therefore, further house price increases, albeit at a notably more modest pace than of late, are the most likely scenario for the coming years. The main risks facing Europe’s housing markets are to emerge in circumstances where there is: (1) a severe growth slowdown combined with rising unemployment, (2) an unexpectedly strong and sudden increase in interest rates, and (3) a decline in popularity of real estate as an investment. Based on our assessment of valuation metrics and household indebtedness indicators, vulnerabilities to such shocks seem the largest in Sweden, Luxembourg and Austria.