Investment Research General Market Conditions 22 October 212 Euro area housing markets A temperature gauge The euro area housing market spans large differences, as shown in Danske Bank s Euro Area Housing Market Index below. Indeed, with regard to housing markets, the euro area looks like independent economies rather than a single market. At the one end, the German house market is warming up after a decade with only minor changes in house prices. House prices are increasing, construction activity is increasing and there is a higher demand for loans for housing purchases. The development is supported by the record-low interest rates on loans. In contrast, especially the Spanish housing market is dead cold. Prices have dropped sharply and continue to fall as there is significant excess supply and it is difficult to access credit. The housing market continues to weigh on the Spanish banking sector, which has led the Spanish government to ask for an EU rescue package targeting the Spanish banks (EURbn has been committed). Also the Italian housing market is under pressure with higher interest rates on mortgage loans and tightened credit standards. Data on Irish housing prices suggest that prices have started to pick up after a drop of. Still, it is too early to conclude that the Irish housing market is recovering. In both Spain and Ireland the construction of new houses has come to an almost full stop. The Dutch housing market is in a correction phase with declining house prices set to continue. The French housing market has started to cool down after prices reached a new peak at the end of 211. France saw only a minor drop in house prices during the financial crisis. Falling mortgage rates and undersupply of urban housing combined with government support for the housing sector (including zero interest-rate mortgages) have helped French house prices double over the past decade. However, we find that there are strong indications of an upcoming correction of the housing market, see also French Housing Market - Draw your own conclusions, 4 October and The next bubble to pop..., April. Average house price in euro area 1 Index 2 Q1= Index 2 Q1= 1 1 8 8 9 9 1 Source: Reuters EcoWin, Danske Bank Very different development in house prices in Euro area Source: Reuters EcoWin, Danske Bank 1 1 1 Germany Finland France Euro Italy Netherlands Spain Ireland Y/Y -1, -1, -,,, 1, Danske Bank s Housing Market Index Senior Economist Frank Øland Hansen +4 4 12 8 26 franh@danskebank.dk. Note: Sorted by Danske Bank s Housing Market Rating. For Germany, Ireland and the eurozone, Housing market activity is based on banking business surveys with bank managers assessment of the current house loan demand. For France and Spain Housing market activity is based on numbers of home-sales and property transactions respectively. There are no suitable data for Finland and Italy. For France, Finland and Spain House construction activity is based on housing starts, where in Germany it is based on housing permits. In Ireland it is based on total housing completions and in the euro area it is y/y in housing construction. Danske Bank s Housing Market Index is a weighted average of the four indicators shown in the table. Senior Economist Anders Møller Lumholtz +4 4 12 84 98 andjrg@danskebank.dk Assistant Analyst Mikael Olai Milhøj milh@danskebank.dk Important disclosures and certifications are contained from page 9 of this report.
Eurozone Uneven house price development 2 2 2 1 1 1 Index, 2= House prices SA Spain Finland Netherlands Index, 2= France Eurozone Ireland, discontinued Germany Ireland, = 2 4 6 8 1 12 2 2 2 1 1 1 Increasing mortgage loans as of GDP 13 Residential mortgage loans in of GDP 11 Ireland Germany, incl. 9 enterprises Spain 7 Eurozone France 3 Italy 1 2 4 6 8 1 12 13 11 9 7 3 1 Uneven development in housing starts House loan demand expected to fall further but at lower pace 1 Index :1= Index :1= 1 Germany 1 Finland Netherlands France Housing starts, Spain SA, 6-month MA Ireland 2 4 6 8 1 12 1 1 1 Net balance Net balance 3 Expected house loan demand 1-1 -3 - Demand for house loans -7 4 6 7 8 9 1 11 12 3 1-1 -3 - -7 Decreasing interest rates Construction is declining 6.. 4. 3. 2. < term < 1 1 < term 1 < term < term < 1 Lending rate for new house loans 3 4 6 7 8 9 1 11 12 6.. 4. 3. 2. 7. of GDP y/y 6.8 << Res. construction, of GDP 6.6 6.4 6.2 Construction, >> 6. residential.8 2 4 6 8 1 12 1 - -1-1 Still modest writedowns on mortgages Credit standards still tightening 7 6 4 3 2 1-1 Euro area Annualised writedowns on lending for house purchase 12 monhs moving average 3 4 6 7 8 9 1 11 12 7 6 4 3 2 1-1 4 3 2 1-1 Net tightening Credit standards, expected tightening Net tightening Credit standards 3 4 6 7 8 9 1 11 12 4 3 2 1-1 2 22 October 212
Germany House price increase is accelerating Increasing building permits 12. Index Q1= Index Q1= 11. Home sales prices 11. 12. 11. 11. 1 13 11 Index 2:1 = Index 2:1 = Building permits, SA, 3-months MA 1 13 11 1. Total new dwellings 1. 9 9.. 7 7 9. 9. Total resales 6 7 8 9 1 11 9. 9. Buildings completed 3 96 98 2 4 6 8 1 12 3 Small increase in new mortgage loans EUR bn 2 1 1 EUR bn New mortgage loans, 4 quarters MA - 9 92 94 96 98 2 4 6 8 1 12 2 1 1 -... reflecting higher demands for house loans 6 Net balance 4 2-2 -4-6 Net balance Demand for house loans Expected demand for house loans 3 4 6 7 8 9 1 11 12 6 4 2-2 -4-6 Construction represents a small but increasing part of the economy Interest rates at record low! 7. of GDP of GDP 7. 6. Construction 6. as a share of GDP, SA. 4. 92 94 96 98 2 4 6 8 1 12 7. 7. 6. 6.. 4. 6.. 4. 3. 2. 1- years -1 years Personal lending rates, new house loans, by maturity +1 years 3 4 6 7 8 9 1 11 12 6.. 4. 3. 2. 3 22 October 212
France House prices have peaked Large fall in housing starts 3 Index 2 Q1= Index 2 Q1= 2 Apparments, Paris House prices, 2 old dwellings 1 Total 1 96 98 2 4 6 8 1 12 3 2 2 1 1 4 4 3 3 2 3-months moving average Housing permits Housing starts 6 7 8 9 1 11 12 4 4 3 3 2 Credit quality is deteriorating rapidly 2 EUR bn EUR bn 19 Households, 18 doubtfull loans 17 16 1 14 14 2 4 6 8 1 12 2 19 18 17 16 1 Increasing stock of houses for sale 2 2 2 2 1 1 1 Index 23 Q1= << Stock of houses for sale Index 23 Q1= Demand for houseloans, Business survey >> 3 4 6 7 8 9 1 11 2 1 - - -1-2 Construction share seems to have peaked for now Record-low interest rates 6. of GDP of GDP 6. 6. Construction 6. as a share of GDP, SA.... 4. 2 4 6 8 1 12 6. 6. 6. 6..... 4.... 4. 4. 4. 4. 3. 3. 3. Average personal lending rate, new house loans 3 4 6 7 8 9 1 11 12... 4. 4. 4. 4. 3. 3. 3. Tightening credit standards Falling affordability index Net percentage Net bal Credit standards >> - - - - << House loans demand 6 7 8 9 1 11 4 3 2 1-1 -2-3 18 17 16 1 14 13 12 11 Index 2Q1= Index 2Q1= House prices/disposable income 2 4 6 8 1 12 18 17 16 1 14 13 12 11 4 22 October 212
Italy Only modest decline in Italian house prices (last observation mid 211) 12 Index = Index = 11 House prices in Italy 9 8 7 6 94 96 98 2 4 6 8 1 12 11 9 8 7 6 Interest rates are increasing 6. All maturities -1 years > 1 years. 4. 1- years Lending rates for 3. new house loans, 2. floating rate < 1 year 2. 1 2 3 4 6 7 8 9 1 11 6.. 4. 3. 2. 2. Growing mortgage loans Expectations of easing credit standards of GDP of GDP 9 8 7 Total mortgages, 4-quarters MA 6 4 3 2 2 4 6 8 1 12 9 8 7 6 4 3 2 - - Net bal Credit standards, loans for house purchases Net bal Past 3-months Tightening Next 3-months 6 7 8 9 1 11 12 - - Ireland House prices are still falling 1 Index = Index = 13 11 9 7 House prices Model: House price = ß + ßGDP_t + ßGDP_t-1 + ßi_t 6 7 8 9 1 11 12 1 13 11 9 7 Sharp decline in construction share 3. of GDP of GDP 3. 2. 2. 2. 2. Construction as share of GDP, 1. 3-months MA 1. 1. 1. 2 4 6 8 1 12 3. 3. 2. 2. 2. 2. 1. 1. 1. 1. No construction of new houses Credit standards expected to tighten 1 9 7 Per month Per month 3 Building completes, SA Building starts, SA - 2 4 6 8 1 12 1 9 7 3-4. 3. Net bal Credit standards, loans fo Net bal 3. house purchases Next 3-months 3. 3. 2. 2. Tightening 2. Past 3-months 2. 6 7 8 9 1 11 12 4. 3. 3. 3. 3. 2. 2. 2. 2. 22 October 212
Spain House prices are declining...which helps affordability 3 EUR/m2 EUR/m2 3 Madrid Catalonia 2 Total 2 1 Andalucia 2 4 6 8 1 12 3 3 2 2 1 23 Index 2:1= Index 2:1= 21 House price / 19 Households income 17 1 13 Housing market 11 affordability index 9 2 4 6 8 1 12 23 21 19 17 1 13 11 9 The decline in housing starts has flattened 2 1 1 Buildings 1 completed Housing starts 2 4 6 8 1 12 2 1 1 1 Low activity in the home sales 9 8 7 6 Numbers of property transactions SA Houses 4 3 2 Apartments 4 6 7 8 9 1 11 12 9 8 7 6 4 3 2 Sources: Reuters EcoWin,Danske Bank Most new loans have a short term Credit quality is falling again of total loans of total loans 8 term<1 year 6 New households mortgage loans categorized by term structure 4 1 year < term < years 2 term> years 8 6 4 2 6 of total loans for house purchase 4 3 2 1 Doubtful loans, house purchase 6 4 3 2 1 3 4 6 7 8 9 1 11 12 9 92 94 96 98 2 4 6 8 1 12 6 22 October 212
Finland House prices are increasing 18 17 16 1 14 13 12 11 9 Index 2Q1= Index 2Q1= Whole country House prices, old terraced houses Helsinki Rest of Finland 2 4 6 8 1 12 18 17 16 1 14 13 12 11 9 Increasing construction share 7. of GDP of GDP 7. 7. 6. 6. 6. 6.. Construction share of GDP. 2 4 6 8 1 12 7. 7. 7. 6. 6. 6. 6... Fewer completed buildings Building permits stagnating 4. 3. 2. 2. 1. 1... Millions Residential Commercial Buildings completed buildings by type 4-quarters MA Office buildings Millions 2 4 6 8 1 12 4. 3. 2. 2. 1. 1... 1 Millions Millions 14 13 Construction, 4-quarters MA Building 12 permits 11 1 9 Buildings 8 started 7 2 4 6 8 1 12 1 14 13 12 11 1 9 8 7 The Netherlands House prices are still falling Building permits at 1-year low 16 Index 2Q1= Index 2Q1= 1 14 Apartments 16 1 14 9 8 7 Number Building permits, 12-months MA Number 9 8 7 13 Total 12 Family dwelling 11 2 4 6 8 1 12 13 12 11 6 4 Buildings completed, 3 12-months MA 96 98 2 4 6 8 1 12 6 4 3 Decrease in mortgage loans Decreasing demand for house loans 3 EUR bn EUR bn 2 1 4q changes in mortgage loans 1 - -1 2 4 6 8 1 12 3 2 1 1 - -1 3 1-1 -3 - -7-9 Net balance Expected demand for house loans Demand for house loans Net balance 3 4 6 7 8 9 1 11 12 3 1-1 -3 - -7-9 7 22 October 212
Construction share is decreasing sharply Decreasing interest rates 6.2 of GDP of GDP 6. Construction as a share of GDP, SA.8 6.2 6..8 6.. Mortgage lending rates, by maturity -1 years +1 years 6...6.4.6.4 4. 1- years 4..2.2 Up to 1 year. 9 9 1. 3. 3 4 6 7 8 9 1 11 12 3. 8 22 October 212
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