Fragile recovery in the European residential sector

Recovery is underway in the majority of European housing markets, but uncertainty remains in the region, with considerable performance variations, says the latest RICS European Housing Review launched today in Brussels (1 March 2011).

While housing markets were experiencing rising prices in Belgium, France, Germany and the Nordic countries during 2010, other markets were still facing problems. Ireland, Hungary and Cyprus experienced significant falls through the year and in the UK, Netherlands, Poland and Italy prices were slightly down.

On the other hand, in Spain, Greece and Portugal last year’s falls were quite moderate despite their economic problems, and the Baltic States are progressively recovering.
Though most European markets are stepping out of the crisis, the research reveals that the future of the European housing is still uncertain and full recovery will depend on many different factors.

Unlike previous housing market upturns, this time the recovery is led by price increases, while other market indicators such as housebuilding supply and sales are still low across Europe, with some exceptions. Also many countries continue to face important mortgage constraints. While interest rates remained low during 2010, markets are likely to be very sensitive to any interest rate increases.

The report’s author, Professor Michael Ball, said:

“Full recovery will not occur until housing markets are fully functioning again: with plentiful mortgage finance, revived housebuilding and extensive market turnover throughout all sectors. However, the residential sector in Europe is far from following the long term standstill that the US housing is experiencing.”

In Hungary, house prices continued to decline in 2010 at an annual rate of more than 10% during the second quarter of the year. With questions over economic policy and European financial markets, prospects for 2011 in the Hungarian residential market do not look promising.