Hot north, cold south is the simple geographic description of Europe’s housing markets with the Nordic countries, Germany and its southern neighbours, France and Belgium all experiencing rises in real house prices in 2010, the new European Housing Review 2011 from the Royal Institution of Chartered Surveyors shows.
Ireland, Hungary and Cyprus experienced falls while Spain, Greece and Portugal saw moderate falls despite their economic difficulties. Prices were slightly down in the UK, Netherlands, Poland and Italy and the Baltic States were recovering from their major crashes.
Unlike previous housing market upswings, prices increases are leading other market indicators, such as transactions and house building but mortgage constraints are affecting many markets.
But interest rates are low and there is little evidence of substantial mortgage debt deleveraging by households in countries with high levels of mortgage debt.The report also says that house building is down all across Europe and is severely lagging recovery in most places.
According to the report’s author, Michael Ball, Professor of Urban and Property Economics in the School of Real Estate and Planning, University of Reading, it does not look as though Europe as a whole is following the USA into many years of housing market mire.
‘But, all the same, there are worrying aspects to the recovery. Perhaps that is unsurprising given the scale of the financial crisis and the more European specific sovereign wealth crisis that followed. Nevertheless, there are several distinctive issues over and above the normal uncertainties that surround the initial phase of an upturn,’ he said.
He points out that the recovery is often being led by prices, the recovery is likely to be highly sensitive to an increase in interest rates and there seems to have been little deleveraging of mortgage debt in most of the countries where it rose so high in the 2000s.
He adds that mortgage markets have yet to normalise, new supply in places where it was already short has been much reduced and house building is faring badly in the recovery.
‘Complete recovery will not occur until housing markets are fully functioning again: with plentiful mortgage finance, revived house building and extensive market turnover throughout all sectors. Unfortunately, at present the foundations for such a recovery are still not in place in many parts of Europe,’ he said.
‘Of course, the longer prices remain strong, the greater the likelihood of a more in depth recovery. However, the prices first approach to market recovery is fraught with risks, which may make this particular housing market upswing more fragile than was typical in the past,’ he explained.
Ball concludes that the recovery will be bumpy. ‘As many of Europe’s housing markets edge their way out of the worst of the downturn, their individual performances inevitably show variations and uncertainties. Extensive cross country differentiation across Europe’s housing markets is also the norm, which the simultaneous boom through much of Europe
in the mid-2000s tended to obscure,’ he said.
‘When looking at the housing market recovery that is occurring in the majority of European countries, this time it appears to be different because of the severity of the downturn, the consequences of the previous boom and the resulting financial crisis,’ he explained.
‘Europe’s housing markets are not yet in equilibrium and there are likely to be continuing surprises along the way until housing markets return to a broader and more stable footing,’ he added.
