Euro Area Housing Markets: A Temperature Gauge‏

The euro area housing market is extremely diverse; in terms of housing markets,it comes across as independent economies rather than a single market.

At the one end, the German housing market is warming up after a decade with only minor changes in house prices. House prices and construction activity are increasing, and there is a higher demand for loans for house purchases. The development is supported by record-low interest rates on loans. It is still far from being a bubble though. In contrast, the Spanish housing market is ice cold. Prices have dropped sharply, and continue to fall as there is significant excess supply and it is difficult to access credit. The Dutch housing market is also freezing. House prices continue to fall, demand for house loans is in decline, and the number of building permits fell significantly. The Irish housing market has been broadly stable since last summer after a 50% drop in prices.

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 complete stop. The French housing market has started to cool down after prices reached a new peak at the end of 2011. 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, there are indications of an upcoming correction in the French housing market. Finally, the Italian housing market is under pressure with a weak economic outlook and tight credit standards. Despite thi,s we have not seen a sharp decline in Italian house prices.

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