European housing markets improving on favourable conditions

The European housing markets keep on the recovery path, albeit with differences amongst the single countries. Pushing sales and prices are favourable conditions like low interest rates and economic growth. The headwinds come from markets turmoils, risk aversion and concerns about the strength of the banking sector in some countries. 

There are differences amongst the domestic housing markets of the European countries. Anyway, on the whole, S&P’s analysts forecast a continuation in growth fueled “mainly by the continuing economic recovery and very favourable mortgage financing conditions”.  The biggest price gains, around 5%, should be in the United Kingdom, in Germany and in Ireland. Three per cent is the forecast for Netherlands while Portugal and Spain should record a 2,5% growth in 2016. A milder recovery is expected in Italy and Switzerland (1,5% each) and Belgium (+1%) while France should be the one flat. As for Italy 2016 will be the first year with a positive growth after a 1% decline price in 2015. The same conditions, recovery and favourable mortgage financing, should push prices in 2017 too. 
“Real GDP grew by 1,5% for the year as a whole in the eurozone and by 2,2% in the U.K, with domestic demand the main driver. Labor market conditions also continued to improve. Meanwhile, mortgage interest rates have continued to trend down to historically low levels to 2,28% in December 2015 from 2,55% on average in December 2014. We expect the European Central Bank's (ECB's) accommodative monetary stance, leading to historically low sovereign bond yields and mortgage interest rates, will spur improvements in all housing markets”.
Nevertheless headwinds can slow down the recovery, especially in the eurozone’s periphery. “From the beginning of the year, turmoil in the European financial markets on the back of uncertainties surrounding global economic growth have led investors to become risk averse and to turn to safer assets, such as core European bonds. In contrast, credit growth in periphery countries remains exposed to a spike in bond yields. Growing concerns about the strength of the banking sector in these countries, together with a widening in spreads, although still moderate, in the periphery sovereign bond market, could weaken the recovery in loans, household investment, and ultimately in the housing market. However, we think the euro area is today equipped with a number of stronger rescue mechanisms. Besides, the ECB is likely to take further action in the event of a tightening in financial and monetary conditions”.

Source: S&P’s Economic Research