Euro house prices to fall further
House prices in Europe still have a "considerable way" to fall, with Ireland, Spain and the Netherlands particularly at risk from weaker economic growth as a result, economists at Frankfurt-based Deutsche Bank said.
“Even though many housing markets have corrected strongly in the last 24 months, it seems we have not yet touched ground everywhere,” economists Tobias Just and Thomas Mayer wrote in a note to clients late yesterday.
“We find that the correction is fairly advanced in the US but has still a considerable way to go in Europe.”
The economists looked at countries in the Organization for Economic Cooperation and Development, concluding that Germany is the only member where no indicator is pointing to overvaluation. In addition, supply-side problems remain on the Irish, Spanish and Finnish housing markets.
Euro-area house prices are likely to extend declines as rising unemployment curbs property demand and banks tighten lending conditions, the European Central Bank said on February 11.
Irish house prices plunged 18.5pc in 2009, according to an index by Irish Life & Permanent.
“Further adjustment seems likely in Ireland, Spain and the Netherlands, but also Italy, France, and, to a somewhat lesser extent, in the UK,” the economists wrote.
“The need for further house price adjustment in these countries poses risks to both the banking sector and economic growth.”
While affordability of housing has improved in the US, it still has some way to go in Europe, the economists wrote.
There’s also an increasing risk of bubbles forming in Asian housing markets in particular, according to the report.
“While house price adjustment is advanced or under way in the industrial countries, there is an increasing risk of new bubbles in other regions of the world,” they wrote.
“House prices have already increased above the pre-crisis levels in Shanghai and Hong Kong and they are close to their previous peak in Singapore.”