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Definitely doomed in 2008

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    Definitely doomed in 2008

    http://www.iht.com/articles/2007/12/...eur.php?page=1

    Outlook Europe 2008: The end of a boom
    By Beth Carney Published: December 20, 2007

    LONDON: After years of high house price growth in much of Europe, the market has started to cool, and some analysts say the countries that have experienced the most dramatic price rises could see downturns in 2008.

    "The long boom is over," said Michael Ball, a professor at the University of Reading Business School's Center for Real Estate Research. "The European market is slowing down quite noticeably."

    In the third quarter of 2007, the most recent reporting period, house price increases in the euro zone slowed to 4.2 percent over the same period last year, the weakest growth recorded since the first quarter of 1999, said Julian Callow, chief European economist at Barclays Capital. In 2008, Callow expects house price inflation across the region to drop to 2 percent, with declines possible in Spain and Ireland, where analysts have been warning of the possibility of price falls for several years.

    In Britain, the Knight Frank real estate agency estimates that house prices will end 2007 at 6 percent more than they were a year ago, and it predicts modest growth of 3 percent in 2008. "The general pattern is we're going to see slower growth over time," said Liam Bailey, the agency's head of residential research.

    Europe has not faced a subprime mortgage crisis like the one in the United States - the European subprime mortgage market is small and lending practices are more conservative - but the resulting worldwide credit crunch has had an impact on the housing market and will continue to do so, analysts say.

    Already the higher interbank borrowing rates that followed the credit market turmoil have pushed up mortgages prices in Spain and Ireland, where mortgages tend to be linked to short-term interest rates, Callow said.

    In addition, the annual bonuses given to many in Britain's financial industry are going to be smaller than they have been in recent years, leaving fewer buyers for certain homes, Bailey said. The declines are likely to rein in price growth for prime houses in London, as well as for second homes around Europe in the coming year, he said.

    Analysts have been warning of a possibility of a market correction in Spain and Ireland for several years. "The difference now is we indeed have a very clear sign that things are moving and we are at a tipping point," said Stephane Deo, head of European economic research at UBS Investment Bank in London.

    Over all, the lending climate has changed, he and other analysts said. "Banks have become much more cautious," he said, noting that the European Central Bank's latest survey of banks in September showed a significant tightening of credit available for mortgages.

    "The key point is that credit standards have been tightened and loan officers are expecting mortgage demand to fall away quite sharply," said Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors. "Against that background, one would think that it's quite likely that the housing market across Europe will be fairly stagnant."

    Although most experts predict flat or modest growth throughout the region, the picture is not the same for every country. While countries like France, Italy and the Netherlands are likely to experience no growth or modest declines, there is a risk of a sharper downturn in the countries that have had the most intense booms: Ireland, Spain and Britain, several analysts said.

    In Ireland, house prices rose by a factor of 4.1 from 1996 to 2006, and in Spain and Britain, house prices rose by a factor of 2.8 in that period, said Oliver Piani, chief executive officer of GE Real Estate Europe. These also are the European countries with the highest ratio of residential debt to gross domestic product (GDP), he said, adding, "They are the economies which are much more vulnerable to a severe housing market correction. That's a worry for the overall economy."

    Tobias Just, an economist with Deutsche Bank in Frankfurt, said Irish house prices already were stagnating, although construction activity has not declined. As a result, he predicts a 10 percent drop in prices within the next 18 months - still a soft landing, considering the growth of the past decade. "This would not be a crash because Irish house prices have been in double digit growth rates for almost 10 years so prices would remain on a high level, but would, of course, ease," he said.

    In Spain, Just expects a price decline of 5 percent to 10 percent in the next 18 months. Already, price growth this year of 3 percent to 5 percent is down from 15 percent growth two years ago, he said. Unlike in Ireland, however, the construction industry in Spain has started to slow. Building permits in the last two months have dropped from the same period last year by almost 40 percent, he said.

    Because residential construction accounts for 8 percent of Spanish GDP, a downturn in building could affect the whole economy. "If residential construction activity declines by 20 percent, of course it would have an enormous impact on GDP," Just said. "This could translate into lower growth or price cuts."

    The situation in Britain is especially difficult to predict, Just and other economists said. "Fundamentally, prices should have stagnated already and they've been increasing," said Just, who predicts prices will level off in 2008, although there is a risk that they will fall.

    Andrew Lilico, managing director of the London-based economic consultancy Europe Economic, agrees that most economists expected prices in Britain to decline in 2004 but, according to Knight Frank, they rose by 3 percent and then rose by 10 percent in both 2005 and 2006.

    "I certainly don't buy any stories of why house price rises have been justified," said Lilico, who added that the only possible explanation he can come up with is that people are expecting to work longer than their parents and grandparents so they are willing to spend more on housing. With the data giving so little insight, Lilico said he has "become wary of predicting price falls."

    John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, too, said a speculative bubble in Britain had pumped up house prices by about 10 percent, but he estimated the risk of prices falling at about one in five. "There's a need to adjust," he said. "Most likely it will adjust gradually, where prices will go up at a modest rate."

    Bolstering house prices in general is the fact that the economy is healthy and unemployment is low, Rubinsohn said.

    While interest rates have risen - the European Central Bank's key rate has gone to 4 percent from 2.25 percent in 2005 - they are still historically low. So although prices could decline in some countries over months or even a year, any drops are unlikely to be sustained or severe in this environment, Rubinsohn said.

    "Generally speaking, to get that sort of outcome, you do need a weaker economy," he said. "We're not going to see a big adjustment down unless the global economy really begins to shudder under the weight of the credit crunch."
    I've seen much of the rest of the world. It is brutal and cruel and dark, Rome is the light.

    #2
    I can't be bothered to read all that.

    Anyhow it's just opinion.

    Halifax reported that house prices went up by 1.3% during December. That's a fact.

    Boomed!

    Comment


      #3
      Do we need more migrants?
      How fortunate for governments that the people they administer don't think

      Comment


        #4
        Originally posted by Troll View Post
        Do we need more migrants?
        Only next to your doorstep.
        I've seen much of the rest of the world. It is brutal and cruel and dark, Rome is the light.

        Comment


          #5
          1.3% rise in December

          That's interesting, Rightmove published 3.2% drop in the first half of December.

          The market must have picked up, as people rushed out to buy in time for Christmas.

          But now we have the January sales.
          I'm alright Jack

          Comment

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