Revival of property markets dependant on mortgage credit
The revival of property markets in Europe relies on the ability of governments to cope with the mortgage credit shortage, 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.
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. His report for the Royal Institution of Chartered Surveyors (RICS) 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. 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.
In Central and Eastern Europe, the financial turmoil hit residential markets very hard. In Hungary transactions fell by 10-15% 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.
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.
Soaring unemployment diminished pool of Irish potential buyers
According to a Reuters’ poll, it will take more than a year for house prices in Ireland to start rising steadily and the risk to that forecast is towards further delay as soaring unemployment diminishes the pool of potential buyers.
According to the poll, a dozen economists expect house prices to fall by -10% this year and to drop another -5% on average over the whole of 2010. Seven of those economists went into more detail, with a consensus forecast that house prices, already down by as much as -40% since it peaked in early 2007, will bottom out next March. Prices would then embark on a steady upward trend from June 2010, according to the median forecast of the seven Dublin-based economists.
As Ireland’s small, open economy is caught in the middle of the global credit crisis at the worst possible time in its domestic economic cycle, risks to housing market performance still appear to be on the downside. As the property market stabilises, Ireland will also need to end its over-reliance on the construction sector as the source of economic growth and budget revenue, analysts said. The commercial property sector, whose rise and fall has left banks with billions of Euros in loans they don’t expect to recover, could take even longer to revive.
Swiss property prices pushed up thanks to strong demand
Strong demand for upmarket homes in Switzerland, partly driven by the limited supply, has pushed up prices in the past year, according to Savills, with chalets prices in the traditional Alpine ski resorts rising by as much as +20% in the past year alone.
Buyers are showing particular favor for the cantons of Vaud and Valais in the southwest, predominantly French-speaking part of the country, made popular by its well-known ski resorts, including Villars in Vaud and the Verbier and Four Valleys resorts in Valais.
In addition to restricting the number of homes available to foreign buyers, the market is tightly regulated, forbidding a foreign buyer to resell a home for five to 10 years, depending on the region and development. As such, it is not possible for investors to “flip” properties for quick profits, which brings great stability to the market.
Recent sales suggest that the market has yet to be affected by the global recession.
According to the Swiss firm Wüest & Partner, which tracks national house prices in conjunction with the country’s Federal Statistics Office (FSO), average house prices in Switzerland rose by almost +4% from 2007 to 2008, against a backdrop of falling prices elsewhere in Europe.
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Chinese house prices fall at a record rate
Chinese home prices fell by a record last month, paced by a 15% plunge in the southern export hub of Shenzhen, where factories closed as growth in the world’s third-biggest economy slowed, according to Bloomberg’s compilation of National Development and Reform Commission figures.
The -1.2% decline in prices in 70 major cities is the most since the Government started issuing the data in August 2005, according to the compilation, and new-home prices fell -1.8%.
The drop in prices reflects cuts by developers to lure buyers as China’s economy expanded at the slowest pace in at least seven years and exports declined by the most in almost 13 years. Chinese builders reported higher sales transactions in February, after a smaller gain in January, when markets were closed for the weeklong Lunar New Year holiday.
China’s gross domestic product (GDP) grew +6.8% in the fourth quarter, and exports dropped -17.5% in January, as demand from the U.S. and Europe dried up.
A fifth of US mortgages are in negative equity
More than 8.3 million US mortgages, or 20% of all mortgaged properties, had negative equity at the end of 2008, according to a new report by Loan Performance, a company that tracks mortgage data.
More than 2.2 million, or 5.3%, of all mortgaged properties are in a severe negative equity position with loan-to-values (LTVs) of 125% or more. California leads the pack with the most property owners with negative equity (1.9m), followed by Florida (1.3m), Texas (498,000), Nevada (170,000), Michigan (128,000) and Arizona (122,000). These areas are severely affected by loans that are 125% or higher than the value of the property are in five states.
This is of serious concern because for some homeowners there is little incentive not to walk away and allow the home to fall into foreclosure. Foreclosed homes drag down the prices of neighboring properties, possibly dragging more homes into negative equity.
The negative equity conundrum appears poised to get worse. Loan Performance calculated that there are another two million houses that are approaching the danger zone, that is, within 5% of being in a negative equity position.
In states where unemployment is high and rising, such as Michigan, the problem of upside down mortgages is acute. For states that haven’t seen a widespread problem in declining prices and therefore upside down mortgages, the worst may be in store.
The study is based on the data of some 45 million properties that carry a mortgage, which accounts for more than 85% of all US mortgages. The data was filtered to include only properties valued between $70,000 and $1.25m.
Merger to weather the slowdown
The Emirates Industrial Bank will merge with the Real Estate Bank in the UAE to create Emirates Development Bank, with DH10bn in capital.
Obaid Humaid Al Tayer, Minister of State for financial affairs, said, “The merger is expected to be finalised by summer. In effect, the Government is merging Emirates Industrial Bank with three other financial institutions to create a state-backed mega-bank aimed at reviving lending to real estate buyers and developers.”
The Real Estate Bank had earlier been combined with Amlak Finance and Tamweel, the UAE’s two largest real estate financiers. The advent of the new Emirates Development Bank will have access to federal funds thereby placing the nation’s home finance sector in a stronger position to weather the slowdown.
