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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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Published by: kjlaqi on Jun 06, 2011
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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
2.8 -2 14.2 -1 1
8.7 -6 18.3 4 4
2.1 1 0.5 9 1
-3.7 - 6.4 0 -2
-10.8 -6 -1.8 -6 -8
-4.6 -2 1.4 -4 -5
2.7 -2 5.1 -1 0
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
Index, 2000=100
Reuters Ecowin
Growth in house prices
Reuters Ecowin
Senior Economist 
Frank Øland Hansen+45 4512 8526
Assistant Analyst 
Jonas Bjarke Jensen+45 4512 8229
-15 -10 -5 0 5 10IrelandSpainItalyGermanyEuroFinlandFranceY/Y
2 | 6 June 2011
Euro area housing markets
Uneven house price development Growing mortgage debt in eurozone
SpainFinlandHouse prices SAIndex, 2000=100EurozoneGermanyIrelandFrance
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
FinlandIrelandHousing starts,SA, 6-month MAIndex, 2000=100FranceGermanySpain
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
term < 11 < term < 510 < term5 < term < 10Lending rate for new house loans%
% 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
Annualised writedownson lending for house purchaseEuro area%%%12 monhs moving average
Net tighteningCredit standardsCredit standards,expected tightening
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets
3 | 6 June 2011
Euro area housing markets
Still slumbering house prices Housing permits stagnating
Index, 1995=100Total resalesHome sales pricesTotal new dwellings
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
BillionsNew mortgage loans,4 quarters MA
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
% of GDPConstructionas a share of GDP, SA
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
House prices at a all-time high Housing starts gradually growing
Index, 2000=100Apparments, ParisHouse prices,old dwellingsTotal
Housing permitsHousing startsThousands per month3-month moving average
Sources: Reuters Ecowin and Danske Markets Sources: Reuters Ecowin and Danske Markets

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