European Housing Still Slumping

Tyler Durden's picture

After a disappointing home sales print in the US (as the shadow overhang remains heavy), some perspective on just how bad it is in Europe is worthwhile. With Spanish yields starting to blow out again, it likely comes as no surprise that, as Goldman notes, the Spanish housing market (and for that matter the periphery in general) is bad and getting worse. However, Ireland remains the worst of the worst and Goldman sees yet another growing divide between the haves and have-nots of Europe as the residential property price performance can essentially be split into four groups: Strong, Recovering, Weak, and Ireland/Spain; with the latter perceived as considerably worse than the 'reported' data would suggest. Is it any wonder that Spain trades wide of Italy again now and as Citi's Buiter noted earlier, Spain is now the fulcrum market (Spanish 10Y spreads +30bps from Friday's tights).


Goldman Focus: House prices continue to fall sharply in the periphery


Bottom line: There is a wide divergence in housing price developments across Europe. The decline in nominal house prices has been exceptionally large in Ireland, but the degree of house price weakness in Spain may be understated by the headline series.

Significant variation in European housing markets: There has been significant variation in the performance of European housing markets since the financial crisis. Chart 1 displays the decline in nominal residential property prices from their respective peaks, using nationally-reported data collated by the OECD. On this basis, the price performance of European residential property markets can essentially be split into four distinct groups:

  1. Strong housing markets: Residential property prices in six of the countries displayed – Germany, France, Belgium, Norway, Switzerland and Finland – are at their respective peaks and the recent price trend has been positive. (Dirk Schumacher discussed the strength of the German housing market in this recent European Weekly Analyst.)
  2. Housing markets in recovery: In the UK, Sweden and for the Euro area as a whole, residential property prices fell in the aftermath of the crisis but have since recovered most of their initial declines.
  3. Weak housing markets: In this group of economies, property prices fell significantly in the aftermath of the crisis and the recent trend continues to be downward. This group includes most the Euro area periphery, as well as, perhaps more surprisingly, the Netherlands and Denmark.
  4. Ireland: Such is the extreme weakness of house prices in Ireland that the Irish property market requires a separate category of its own. Irish property prices have halved in value from their peak – more than twice the decline registered in the second-worst performer (Spain) – and the trajectory in Irish house prices remains sharply negative (Chart 2).

Why have house prices fallen so much further in Ireland, when other peripheral states face similar issues of over-supply and constrained lending? Part of the explanation is likely to lie in the extent of the pre-crisis bubble in Ireland, which was larger – both in terms of prices and supply – than in other peripheral economies. On this basis, there are few lessons to be drawn from Ireland’s experience for others in the periphery. But there are other possible explanations:

  • Irish house prices have adjusted more rapidly: Wage costs and output prices have adjusted more rapidly in Ireland than in other peripheral economies. It may therefore be the case that house prices have also adjusted more rapidly. One possibility is that the early crystallisation of losses among property developers that resulted from the creation of NAMA – Ireland’s “bad bank” – has resulted in a relatively rapid adjustment to the true market clearing price.
  • Spain’s official house price series may understate the “true” weakness of prices: As we discussed in this European Weekly Analyst last year, the “official” house price series for Spain – which is based on the appraisal of real estate agents – suggests a stronger picture than is portrayed by other house price indicators. While the official house price series suggests that nominal prices have fallen by 19% from the peak, a series of asking prices reported by the Bank of Spain has declined by 29% from its peak.

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Clueless Economist's picture

ZH says Housing sales were disappointing??  But the AP headline is "Sales of previously owned homes shows continuing strength"  The NAR says there has never been a better time to buy a home.

I for one believe Mr Yun and the NAR and the AP over ZH>

Crisismode's picture

"A fool and his money are soon parted."



qqqqtrader's picture

No Doubt! Every year the NAR has been saying it's time to buy a house!


Carl Spackler's picture

It's the National Association of Realtor's job to always spread the lie that every day is the best day to buy more real estate.

Their comission-compensated members don't pay dues to have the NAR say, "It is prudent to stop looking for a home, right now. Wait a few years for the market to flush out and price discovery to occur. Then buy"

Son of Loki's picture

Buy all you have over 12 million oversupply to choose from.

Cognitive Dissonance's picture

To the heroin addict who just scored a fresh supply, life just got better real fast. The Fed operates on this principal. No withdrawal allowed on their watch.

Eventually the body just ceases to function and shuts down. We have many miles to go before this inevitable conclusion must be faced.

Stoploss's picture

Dominoe #2 on deck.

goldinpenguin's picture

Ireland and Spain had a second home RE bubble similar to the US sand states, if the charts showed AZ,NV and FL rather than just the US you'd see the similarity. Ireland is worse because NAMA is apparently trying to clear the inventory rather than hide it like US and Spanish banks.

THE DORK OF CORK's picture

Yes Ireland does have that advantage -  we are already deep into a deleveraging phase unlike Spain -also our exports are  not very petro  -senstive although are taxed very lightly.

 Irish internal demand destruction is a nothing to Europe - however Spain is a much bigger beast.

The last time Spain made some good investments was its nuclear programme in the early 80s before it was taken out by a European banking system that wanted to export the European capital Base to China & others.

Since then only the high speed rail line between Madrid & Barcelona has been a long term big success story (it was once one of the busiest air routes in the world  -  now not so much so therefore less Kerosene is needed to connect both those cities)

q99x2's picture

Can't remember if Buffet and Faber are pushing houses there as well as the US. At least Faber said to move a couple of concubines in with you when you make your purchase.

Debugas's picture

real estate was used as a vehicle for credit expansion that is why when credit contraction started  the worst hit was on real estate and it is going to continue

Sandmann's picture

London Real Estate at $10 million plus is booming - seems there is no problem for people who don't pay Stamp Duty or Taxes when buying houses - but the suckers that pay their way month-to-month are truly screwed

TINN's picture

When in heaven will ever the Norwegian houseprices normalize?????????????????????????????????????????????

Steady rise for 21 years, can it grow for another 21 years?

Its impossible for younger people to get a housing nowadays.

The government favorizes ownership with tax deductions.




Gromit's picture

Good question in the hearings this morning about how Europe has responded to housing  foreclosures. Basically Bernancke and Geithner did not have much to say.

IMHO foreclosures don't elicit much public sympathy in Europe, they foreclose and life goes on. Whereas in the US there is immense public concenr over people losing their homes.

But what about renters? Why is it OK to turn a deadbeat tenant out on the streets in quick time but not an overreaching homeowner?

swissaustrian's picture

Many European real estate funds are still organized like stock mutual funds, some with daily/weekly liquidity (totally insane, given the illiquidity of RE). This prooved to be totally suicidal for them as panicing institutional investors parked their money in RE funds during the 2008 crash and then abruptly left after central banks flooded markets with liquidity. Now many of these RE funds are in liquidation and redemption of shares is suspended. Guess who got fucked the most: the retail sheeple.

THE DORK OF CORK's picture

One of the main problems with Spain is that it is isolated from the European Gas pipline system - therefore it needs to import more expensive LNG

Go to first Map and click on Spain

27.8 BCM of the total 36.7 BCM Gas Imports was LNG in 2010.


dirtbagger's picture

Little perspective here.  The population of Ireland is 4.5 million