The Berlin skyline. German house prices rose 6.2% on the year in 3Q 2016. Photo: fabrizio bensch/Reuters

Paul Hannon The Wall Street Journal @PaulHannon29 paul.hannon@wsj.com

Eurozone house prices rose at the fastest pace since before the global financial crisis in the third quarter of 2016, a development that should make homeowners feel richer and support the currency area’s modest recovery.

The European Union’s statistics agency said Thursday that house prices in the three months through September 2016 were up 1.3% from the second quarter and 3.4% from the same period of 2015. That was the largest on-the-year rise since the first quarter of 2008, some six months before the world-wide crisis was triggered by the collapse of Lehman Brothers.

The pickup in house prices reflected a steady decline in unemployment rates, driven by low interest rates and the eurozone’s steady if modest economic recovery. Rising house prices should also support growth over the coming months, since homeowners should feel wealthier and therefore inclined to spend more.

Among the larger eurozone economies, the pickup in prices was led by Germany, which boasts the strongest jobs market and has been less affected by the currency area’s government debt and banking problems.

There were also clear signs of recovery in the countries worst hit by the financial crisis and the currency bloc’s subsequent troubles. While German house prices were up 6.2% on the year, Spanish prices were up 4.0% and Irish prices were up 7.1%.

In common with other developed regions, eurozone house prices fell in the wake of the financial crisis, but began to rise again from mid-2010. Unlike the U.S. and elsewhere, eurozone house prices then fell once more and only began to rise again in mid-2014.

The start of that rebound coincided with the first of a series of stimulus measures announced by the European Central Bank that were designed to boost weak economic growth and very low inflation. Those stimulus programs have led to worries in Germany and elsewhere that prices of assets—including houses—could surge and sow the seeds of another financial crisis.

But there are few signs of overheating in the housing market and borrowing to fund home purchases has remained modest. According to ECB figures, mortgage lending in November 2016 was just 2.6% higher than in the same month of 2015.

Write to Paul Hannon at paul.hannon@wsj.com