Eurozone housing markets cool

All Financial Times

Eurozone demand for house loans has dropped sharply, supporting the European Central Bank's view that property markets are cooling – so far in an orderly manner.

Eurozone housing markets have varied considerably in recent years, with countries such as Spain, Ireland and France seeing rapid growth while German prices have remained flat or even fallen. The ECB's survey results fit with anecdotal and other data pointing to a general slowdown in house price growth in those countries that have seen the fastest increases.

Seven increases of a quarter percentage point in the ECB's main interest rate since December 2005 have contributed to the slowdown. But so far, the eurozone has avoided any sharp correction that might have damaging economic consequences, although worries remain about the vulnerability of the Spanish market in particular.

For the eurozone as a whole, Jean-Claude Trichet, ECB president, pointed to a gradual slowdown in the growth of actual lending to households for house purchases, which fell to an annual rate of 8.9 per cent in March, from more than 10 per cent at the end of last year. This represented "a certain cooling down," he said.

The ECB is expected to raise its main interest rate by another quarter percentage point, to 4 per cent, in June, and economists have generally pencilled in another such increase by the end of the year.

This sounds like a pretty tame report considering that the disappointing housing news that hit Spain only a few weeks ago wreaked havoc on their building industry stocks, leaving the prospects for their near future shaky to say the least.

This sort of journalistic conservative toe dipping is not without precedent, I was reading the same kind of reports less than a year ago about the U.S. housing market.

I was traveling in Spain last year and I saw what looked to be huge over capacity and very high housing prices. My first impression was that it was a larger bubble than the U.S. I read a report not long after that mentioned property speculators were holding up to three million units unoccupied, in Spain!

Watch for the reports from the Spanish and French housing bubbles to become more direct and to the point soon as the first signs of a bust there have already shown up. Other areas such as in Eastern Europe – Poland, Estonia and Lithuania will also soon be wrestling with the downside from their own housing market bubbles.
Vern