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2011-06-06 Danske Euro Area Housing Market - A Temperature Gauge

2011-06-06 Danske Euro Area Housing Market - A Temperature Gauge

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06/07/2011

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 www.danskeresearch.com
 
Investment Research
—
General Market Conditions
Average house prices in the euro area have grown moderately since late-2009 and arealmost back at pre-crisis levels, helped by record low interest rates. Demand for housingloans has begun to increase slightly, but credit standards are still being tightened. Theconstruction sector, which contracted 20% during 2007-09, has stabilised in 2010. Thesomewhat dull euro area housing market spans large differences, as shown in our HousingMarket Index below. Indeed, with regard to housing markets, the euro area still looksmore like independent economies than it does a single market.At the one end, the French housing market is quite hot with surging house prices and aresidential construction sector on the rise. France saw only a minor drop in house pricesduring the financial crisis. Falling mortgage rates and undersupply of urban housingcombined with government support for the housing sector (including zero interest-ratemortgages) has helped to push French house prices up to new all-time highs.In contrast the Irish housing market is stone cold. House prices have plunged 38% andresidential construction has all but come to a standstill. Residential construction activityin Q4 10 was around one-tenth of peak levels. The decline in new house guaranteeregistrations has been even more pronounced. It has fallen from 6,664 units in March2006 to 87 units in March this year.The diverse signals from the housing markets reflect a very heterogeneous Europeaneconomy. This puts Trichet in a delicate position as higher interest rates are appropriatefor the booming German and French economies, while the situation in the troubled periphery countries is begging for rates to be kept low. We expect the ECB to hike ratesin July, October and January 2010, which brings the refinancing rate to 2%, before it putsthis hiking cycle on pause. This will help to dampen the boiling French housing market, but will also keep housing markets in the periphery countries out in the cold and putfurther pressure on the Spanish cajas, for example.
Danske Bank 
’
s Housing Market Index
Sources: Reuters Ecowin, Danske Markets.Note: For France, Germany , Ireland and the eurozone,
”  
House market activity 
”  
is based on banking businesssurveys with bank managers assessment of the current house loan demand. For Spain,
”  
house market activity 
”  
is based on numbers of property transactions. For Finland 
“  
House market activity 
”  
is based onnumbers of new loans issued. For France, Ireland , Finland and Spain
”  
House construction activity 
”  
is % y/y inhousing starts, where in Germany it is % y/y in housing permits, and in the euro area it is % y/y in housingconstruction. The Housing Market Index is a weighted average of the four indicators shown in the table.
House pricesHousing marketactivitCredit GrowthResidentialconstructionDanske Bank'sHousin Market
Unit% y/yRating -10 to 10% y/yRating -10 to 10Rating -10 to 10
Finland
2.8 -2 14.2 -1 1
France
8.7 -6 18.3 4 4
Germany
2.1 1 0.5 9 1
Italy
-3.7 - 6.4 0 -2
Ireland
-10.8 -6 -1.8 -6 -8
Spain
-4.6 -2 1.4 -4 -5
Eurozone
2.7 -2 5.1 -1 0
HighactivityLowactivity
 
6 June 2011
Important disclosures and certifications are contained from page 7 of this report.
 
Euro area housing markets
A temperature gauge
Average house price in the euroarea
969800020406081080901001101201301401501608090100110120130140150160
Index, 2000=100
 
Reuters Ecowin
Growth in house prices
Reuters Ecowin
Senior Economist 
Frank Øland Hansen+45 4512 8526
franh@danskebank.dk 
 
Assistant Analyst 
Jonas Bjarke Jensen+45 4512 8229
onjens@danskebank.dk 
 
-15 -10 -5 0 5 10IrelandSpainItalyGermanyEuroFinlandFranceY/Y
%
 
 
2 | 6 June 2011
www.danskeresearch.com
 
Euro area housing markets
Eurozone
Uneven house price development Growing mortgage debt in eurozone
00010203040506070809107510012515017520022525075100125150175200225250
SpainFinlandHouse prices SAIndex, 2000=100EurozoneGermanyIrelandFrance
 
99010203040506070809100510152025303540455005101520253035404550
EurozoneSpainResidential mortgage loans in % of GDPItalyFranceIrelandGermany, incl.enterprises
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
Housing starts have dropped Stagnating loan demand
000102030405060708091002550751001251501750255075100125150175
FinlandIrelandHousing starts,SA, 6-month MAIndex, 2000=100FranceGermanySpain
 
0405060708091011-70-50-30-10103050-70-50-30-10103050
Net balanceNet balanceDemand for house loansExpected house loan demand
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
Interest rates have started to climb Construction moving out of standstill
03040506070809102.53.03.54.04.55.05.56.02.53.03.54.04.55.05.56.0
term < 11 < term < 510 < term5 < term < 10Lending rate for new house loans%
 
92949698000204060810-15-13-10-8-5-30358105.005.255.505.756.006.256.50
% of GDP% y/y<< Res. construction, % of GDPConstruction, residential >>
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
Still modest writedowns on mortgages Credit standards are tightening again
0304050607080910-101234567-101234567
Annualised writedownson lending for house purchaseEuro area%%%12 monhs moving average
 
0304050607080910-1001020304050-1001020304050
Net tighteningCredit standardsCredit standards,expected tightening
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
 
 
3 | 6 June 2011
www.danskeresearch.com
 
Euro area housing markets
Germany
Still slumbering house prices Housing permits stagnating
969800020406081087.590.092.595.097.5100.0102.5105.087.590.092.595.097.5100.0102.5105.0
Index, 1995=100Total resalesHome sales pricesTotal new dwellings
 
969800020406081020304050607080901001102030405060708090100110
Buildings completedBuilding permits,SA, 3-month MAIndex, 1996=100
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
New mortgages are slowly picking up But demand is dropping again
707580859095000510-50510152025-50510152025
BillionsNew mortgage loans,4 quarters MA
 
0304050607080910-60-40-200204060-60-40-200204060
Net balanceExpected demand for house loansDemand forhouse loans
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
Construction has steadily declined German interest rates have increased
929496980002040608103.54.04.55.05.56.06.57.07.53.54.04.55.05.56.06.57.07.5
% of GDPConstructionas a share of GDP, SA
 
03040506070809103.253.503.754.004.254.504.755.005.255.505.753.253.503.754.004.254.504.755.005.255.505.75
Personal lending rates,new house loans, by maturity%+10 years1-5 years5-10 years
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
France
House prices at a all-time high Housing starts gradually growing
96980002040608107510012515017520022525027575100125150175200225250275
Index, 2000=100Apparments, ParisHouse prices,old dwellingsTotal
 
06070809101120253035404550552025303540455055
Housing permitsHousing startsThousands per month3-month moving average
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets

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