Housing market slowing in Europe

[82riceballs]

A UK charity says a new safety net is needed for homeowners
House price growth across Europe slowed sharply in the second half of 2007, according to a report.

A survey by the Royal Institution of Chartered Surveyors (Rics) said rising interest rates, not the credit crunch, were the prime reason for the slowdown.

It predicted a further downturn in markets across the continent in 2008 but said that the UK was better placed than most for prices to stabilise.

House prices rose fastest in Poland in 2007, but fell the most in Ireland.

Rates vs credit crunch

The Rics European Housing Review blamed rising interest rates for the housing market weakness.

But it said that rates were not rising as fast as they had during previous housing market downturns and added that "this gives optimism that the current 'correction' would not be too great".

Europe's economy was in much worse shape during the last housing market crisis in the 1990s, it added.

"The European economy is still in good shape ... The combination of markedly higher interest rates and a sudden, sharp recession, which last sent Europe's housing markets tumbling in the early 1990s, is still remote," it said.

But with inflation in the eurozone higher than the European Central Bank target of 2.0%, interest rates could rise again. With variable rate mortgages common in countries such as Ireland and Spain, homeowners could be hard hit.

"Housing market prospects in 2008 depend on what happens to interest rates," it said.

The report said that banks, monetary authorities and commentators all said the sub-prime mortgage crisis in the US was unlikely to be repeated in Europe given the difference in the mortgage markets between the two continents.

Unlucky Irish

Prices fell by an estimated 7% - nearly a tenth in real terms - in Ireland last year, the biggest fall reported in the survey.

One of the EU's smallest member states, Cyprus, bucked the trend as house price rises accelerated in 2007, possibly owing to the prospect of joining the euro and the influx of foreign investors.

The Baltic States, where prices soared between 2000 and 2006, saw early-year price rises wiped out later in the year, particularly in Estonia and Latvia.

Poland recorded the highest rate of house price increases in 2007, but sales of newly-built apartments in Warsaw fell later in the year, the review said.

House price inflation fell in the UK, the Netherlands and Sweden in the second half of 2007.

The UK market remained one of the strongest in Europe in 2007 and further UK interest rate cuts in 2008 are likely to have a positive impact on housing demand, the report said.

Cheap insurance?

In a separate report, the Joseph Rowntree Foundation called for cheap insurance for homeowners most at risk.

Fewer than one in five people have private insurance to protect them against sudden loss of earnings owing to unemployment, sickness or an accident. This is far below the government target of 50%.

The charity proposed a cheap insurance scheme which would cover mortgage repayments for ten months after a sudden loss of earnings.

The cost of this scheme would be split, with borrowers paying for half and lenders and the government covering the rest.
   
THE REVIEW IN NUMBERS
7% - fall in house prices in Ireland in 2007
200% - reported real house price rises in the Baltic States in 2000-2006
40% - fall in permits to build new homes in Germany in 2007
One-fifth - houses put up for sale in Ireland in January 2007 that were still on the market 10 months later
Source: Rics

http://news.bbc.co.uk/2/hi/business/7277588.stm

[82riceballs]

I have a few questions, as I'm not that good at economics:

1.

A survey by the Royal Institution of Chartered Surveyors (Rics) said rising interest rates, not the credit crunch, were the prime reason for the slowdown.

So what this means is that
          rising interest rates > ppl borrow & spend less > houses harder to sell > house prices plummet ?
What's the difference b/w this and a credit crunch, when credit is hard to get?

2.

The report said that banks, monetary authorities and commentators all said the sub-prime mortgage crisis in the US was unlikely to be repeated in Europe given the difference in the mortgage markets between the two continents.

a. who are the monetary authorities? are they like the US Federal Reserve guys?
b. what's the difference between US & Europe's mortgage markets? Does the European one not have a "sub-prime" market? Why not? Does China have a sub-prime market?

3.

House price inflation fell in the UK, the Netherlands and Sweden in the second half of 2007.

Is this considered a bubble?

[Polly]

1. I think it means potential buyers (whether first time or not) are put off by the high interest rate which is also looking to go yet higher, so they do not proceed with their plan.  When there are fewer potential buyers, potential sellers will be under pressure to soften their asking price.  As a result there is a downward pressure on both the transaction price and the nos. of transactions, causing the housing market to "slowdown".

These potential buyer are not put off, however, by the difficulty to get a mortgage (ie banks being more picky with the financial integrity of their potential clients for whatever reasons you can think of).

2.  Where is Art when we need him?!

I am not sure, but here is a site in the UK which I always look at (the blue graph is mightily useful, and check out their forum as well)

http://www.housepricecrash.co.uk/index.php

Tell me, Riceball, what is "subprime"?  Subprime is a euthemism for unqualified mortgage borrowers who are granted loans anyway by the banks.  Do they exist as a class in Europe and China?

3.  The answer lies in "what is a bubble?".

[shan]

ART must be hiding in a Primitive cave and sucking living monkey's brain juice

[The Smoking Man]

ART must be hiding in a Primitive cave and sucking living monkey's brain juice

No, the primitive monkeys are having another political meeting in Beijing.

[Polly]

primates, chimpanzees, bonoboes, Art....

[Art]

I've never understood why people get so excited about house prices. Most people spend most of their lives in the same house and so unless they sell up and live in a tent house price appreciation and depreciation is largely irrelevant to them.

The reason why house prices are so sensitive to interest rates is because a huge chunk of the market is taken up by property investors. These individuals tend to be highly leveraged and so even a small interest rate hike can put them into the red. These are the folk who jump out of the market at the first sniff of trouble increasing the number of houses for sale and thus pushing down prices creating a snowball effect.

By the same token these same individuals cause housing price booms as they snatch up all new properties in their effort to make money through rents and capital appreciation creating shortages. The recent fall in prices isn't a bad thing as it doesn't hurt for these people to get burned once in a while. As it was house prices had risen to a level in Ireland that ordinary first time buyers simply could not afford.

Ireland's larger decline than the average is a result of interest rate increases coupled with a reduction in the number of new immigrants from the new EU members leading to lower rental demand which triggered a mass dumping of property by the speculators.

[Polly]

  Oh oh oh, I discovered the magic words to make Art appear!!!

Long time no see lah Artie dear!

People get excited about property boom and bust precisely because they view it as an investment vehicle other than serving the habitation purpose.

And according to some older investors (in HK), while they have seen many getting rich from investing in property, they have seldom seen people making big money from the stock market. They are of the opinion that it is precisely because of 1, the leverage ratio difference between stocks and property, 2, and stock holders are more likely to liquidate than property owners and therefore unable to take advantage of the whole upward trend in its entirety.

A bust is not a bad thing because generally the price will hit bottom in about 4-6 years (explained elsewhere) from the peak.  So start counting and here is your chance to buy at rock bottom again .