Overheating sees house price downturn in Europe

EU

House prices on the overheated fringes of Europe have begun to turn down sharply, replicating the early phase of the sub-prime property slide in the United States.

Irish property has fallen for the past four months in a row as higher eurozone interest rates start to bite harder, while the speculative bubble in the Baltic states has burst. House prices in the greater Riga region of Latvia fell 3.5% in June, following a 1% fall in May. Flats in the old city became more expensive than Berlin by early this year in a speculative frenzy, much of it with euro, Swiss franc, and yen mortgages that could prove disastrous if Latvia’s currency is suddenly devalued - as may well happen, given the country's current account deficit has exploded to 26% of GDP. Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank has warned that much of Eastern Europe has been inflated by a "monster bubble" that recalls conditions in east Asia shortly before the crisis broke in 1997.

In Ireland, house prices dropped 2.6% in first six months of the year to June, with falls of 3.3% in Dublin. The slowdown is rapidly spilling across into building. House registrations are down 34% over the H1. Roughly 15% of housing stock lies empty, according to the Irish census. Jean-Michel Six, chief Europe economist for Standard & Poor’s, said extreme levels of household debt across large parts of Europe left the region vulnerable to tightening credit conditions. Debt levels are above 100% of GDP in Ireland, Britain, Spain, the Netherlands, and Denmark. “Spain is heading south. Local real estate companies have reported price falls on a quarter-to-quarter basis in Madrid and several other provinces,” he said. French property prices fell 1.5% in July - though they were still up 5% over the year. “House price inflation could turn negative in the second half of this year,” he said, adding that proposals by President Nicolas Sarkozy to allow new buyers to offset part of their interest costs against tax would help support the market.

“The spate of interest rate rises by central banks is exacting its toll on disposable incomes already weighed by rising household indebtedness,” he said. The European Central Bank has doubled rates from 2% in December 2005 to 4%. The recent turmoil has pushed up the effective rate of borrowing even further in some countries. (telegraph.co.uk)

ADVERTISEMENT

Nearly 18% of Polish firms plan investments in next 3 months... Analysis

Nearly 18% of Polish firms plan investments in next 3 months...

Lawmakers approve 2022 budget Parliament

Lawmakers approve 2022 budget

Duncan Graham reelected as BCCH president Appointments

Duncan Graham reelected as BCCH president

Chain Bridge to be closed for traffic for 18 months City

Chain Bridge to be closed for traffic for 18 months

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.