Significant reductions in mortgage lending due to the credit crunch along with the global economic downturn has severely depresses demand for residential property across Europe, according to a report by Michael Ball, professor of Urban and Property Economics at the Department of Real Estate and Planning at the Business School at Reading University.
His report for the Royal Institution of Chartered Surveyors show that the Baltic States experienced the sharpest falls, with Estonia down 23%, followed closely by the UK which saw a drop of 16%), Ireland down 9% and Norway dropping 8%.
Even those economies that did not experience a boom in house prices have not been spared from the squeeze in the property market. In Germany and Austria, a lack of credit has hit demand and further moderate falls in house prices and activity are expected in 2009.
Meanwhile in Italy sales declined and for the first time in more than a decade mortgage growth was negative in 2008.
Though official indices in Spain surprisingly recorded only moderate price falls through the year, the dramatic effects of the credit crunch on mortgage availability and the ending of a consumer boom are likely to lead to a more material readjustment of prices in 2009. In addition, the worsening global economic climate will lead to a further deterioration in the Spanish second homes sector, the report warns.
The UK and Ireland experienced some of the worst market declines in 2008, with significant price falls in both cases. However, according to the January RICS UK Housing Market survey there is evidence that some buyers are beginning to show renewed interest, looking for bargains. Even so, it is premature to assume that this marks the bottom of the cycle for prices,' it says.
In Central and Eastern Europe, the financial turmoil hit residential markets very hard; In Hungary transactions fell by 10 to 15% in 2008 and house prices declined in all major Polish cities during 2008. Continued constraints on mortgage availability and the rising cost of foreign currency loans may lead to further falls.
In France, transactions of existing homes fell by 30% in 2008 and prices are expected to continue to slide in 2009 as a result of the weak economy.
The nationalisation of some of the major mortgage lenders in the Netherlands and Belgium, such as Fortis bank, has had a significant impact in those countries' housing markets, which could lead to a further weakening of prices.
'Given the broader context in which these housing market downturns are taking place, there is greater synchronisation of housing market decline in Europe than has been seen in the past and there are going to be some tough times before marked recovery occurs,' said Ball.
Simon Rubinsohn, chief economist of RICS, said that he believes that activity levels will continue to weaken through much of 2009 and prices look set to fall further in most markets. 'Ensuring a ready flow of mortgage finance needs to be an important priority for European governments but the key to providing support for property markets across the region is effective measures to underpin the economy,' he added.
