Europe's Housing Market Recovery Is Not Yet On Solid Ground: Economic Research

Economic Research:
Europe's Housing Market Recovery Is Not Yet On Solid Ground

Economist: Sophie Tahiri, Paris 33 1 44 20 67 88; sophie.tahiri@standardandpoors.com EMEA Chief Economist: Jean-Michel Six, EMEA Chief Economist, Paris (33) 1-4420-6705; jean-michel.six@standardandpoors.com
Table Of Contents
Belgium's Housing Market May Soften Amid Fiscal Uncertainties French House Prices Are Still Contracting Modestly German Home Prices Are Still Rising, But At a Slower Pace Ireland's Two-Speed House-Price Recovery Continues Italy's Residential Prices Will Continue To Fall in 2014 The Netherlands' Housing Market Is Stabilizing Portugal's Housing Market May Start To Stabilize This Year Spain's House Price Slump May Bottom Out Next Year Swiss House Prices Are Still Rising, But More Modestly The U.K. Housing Market: Back To The Good Old Days?
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Economic Research:
Europe's Housing Market Recovery Is Not Yet On Solid Ground

House prices in most European markets appear to be stabilizing in line with the gradual upturn in economic conditions. But a recovery is still some way off for some markets in the eurozone that were worst affected by the economic downturn, such as Spain, Portugal, and Italy, amid still tight credit conditions and high household debt. Outside the European and Economic Monetary Union (EMU or eurozone), the U.K. housing market is staging an impressive upturn alongside its overall economic recovery. We forecast house prices will rise by 7% this year (see table 1), aided by favorable financing conditions, falling unemployment, and tight housing supply. We nevertheless expect price rises will cool once the Bank of England implements a rate hike, expected at the start of next year. Within the eurozone, we expect Germany will experience the strongest house price inflation, with prices rising by 4.5% on average this year, backed by low unemployment, rising consumer confidence, and increasing immigration. We nevertheless see no prospect of a housing bubble since price rises have occurred from a fairly low base. Overview Many of Europe's housing markets are stabilizing or reviving this year as economic conditions gradually improve. We forecast the U.K. will record the highest house price inflation this year, with a year-on-year rise of 7%, followed by Germany (4.5%), Ireland (3.5%), and Switzerland (2.5%). We expect that house prices will continue to decline in Spain (-2%), France (-2%), and Italy (-1%).
Ireland's housing market should also grow fairly strongly this year by an average 3.5%, fueled mainly by demand for homes in the larger cities. However, we don't expect this revival to stay as strong beyond 2014 because bank lending conditions for home loans in Ireland remain tight and high mortgage arrears will maintain downward pressure on prices. At the other end of the spectrum, we forecast house prices in Spain will keep falling this year by 2%. Although the slump has decelerated since 2013 on the back of improving economic conditions and a rise in housing demand from foreigners, particularly in coastal regions, we don't think the sector has turned the corner just yet. Supply continues to significantly exceed demand, credit conditions remain tight, and real estate still appears between 9% and 18% overvalued compared with incomes, rents, and long-term averages. We also expect France's housing market will decline by 2% this year. Nevertheless, a pick-up in economic growth in 2015 will help house prices bounce back in 2015, rising by 2%.
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Economic Research: Europe's Housing Market Recovery Is Not Yet On Solid Ground
Table 1
European Housing Market Nominal House Price Forecasts

(% change year on year) Belgium France Germany Ireland Italy Netherlands Portugal Spain Switzerland U.K. 2011 2.0 3.8 4.5 (15.9) 0.4 (3.4) (0.8) (7.1) 3.7 (0.5) 2012 1.5 (2.1) 3.7 (6.1) (5.2) (7.3) (2.7) (10.5) 3.6 2.3 2013e 1.7 (1.4) 5.0 6.0 (5.0) (4.2) (3.0) (4.6) 4.6 5.4 2014f 1.0 (2.0) 4.5 3.5 (1.0) 1.0 0.5 (2.0) 2.5 7.0 2015f 0.5 2.0 4.0 2.0 1.0 2.0 1.0 0.0 2.0 4.5
f--Forecast. e--Estimate. Sources: Standard & Poor's, OECD, and Hypoport.
Belgium's Housing Market May Soften Amid Fiscal Uncertainties

We forecast that house price rises in Belgium will decelerate marginally to 1% this year, and just 0.5% in 2015 (see table 2), as various fiscal incentives for home purchasing come to an end or face an uncertain future. Any heavier scale-down of fiscal incentives than we currently expect in the context of fiscal consolidation could even trigger price declines, in our view. Nevertheless, demand for new housing, and the relative affordability of home prices in Brussels compared with capitals in France or London, should keep house prices resilient over the longer run.
Recent trends
National statistics indicate that house prices increased by 1.7% in 2013 after rising by approximately the same rate the previous year. Residential property in Brussels, the capital, increased the most: up 5.5% year on year in the fourth quarter of 2013. Meanwhile, prices in the Walloon region only stabilized (+0.9%) while in the Flemish region they increased only moderately by 1.5%). Purchase transactions, by contrast, declined by 2.0% in 2013 compared with 2012: Approximately 121,700 units changed hands versus 124,000 in 2012 (see chart 1), suggesting that households remained cautious in their investments amid still rising unemployment and fiscal uncertainties. Bank of Belgium data appear to confirm this caution, indicating that gross lending for house purchases also weakened by 7% in 2013 on 2012, after an annual decline of 14.0% in 2012 on the previous year. The average mortgage loan fell to 134,956 in 2013, from 136,100 in 2012. In contrast, the average price for a home has continued to increase, rising 2.5% year on year to 223,221. Several factors explain the Belgian housing market's resilience, in our opinion. First, the Belgian economy remained relatively resilient in 2013, growing by 0.2%, while the eurozone as a whole dipped by 0.4% (see table 2). In real terms, households' disposable income increased by 0.3% in 2013, in line with GDP growth. Meanwhile, household financial assets continued to increase, reaching 1,058 billion at the end of September 2013 (net financial wealth is estimated at 838 billion), which is among the highest in Europe. Elevated savings enable Belgians to make large down payments when buying a house, hence making them less dependent on credit conditions. Between 1996 and 2013, the average
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loan-to-value ratio on new lending has never exceeded 82% and has been on a declining path, suggesting that large down payments have helped households to keep up with price increases. As a result, Belgian household debt (56.4% of GDP in September 2013) remains well below the eurozone average of 64.2%. Supportive tax policies have also encouraged home buying. We believe the tax amnesty (Dclaration Libratoire Unique) the government introduced in 2005 and extended through Dec. 31, 2013, has encouraged Belgian households to repatriate funds and reinvest a portion of them in residential property, so supporting house price increases. In 2004, the average price for a standard house was equivalent to the average mortgage loan, at approximately 101,000. By 2013, the difference between the value of the property and the loan had increased as much as 65,000. Other fiscal incentives on deductibility of borrowing costs (or "Bonus Logement") also gave households incentives to purchase a home, although these could be scaled down in the future. Further supporting the resilience of Belgium's housing market is the supply-and-demand balance that indicates the country has no supply overhang. While the number of households expanded by about 40,000 per year between 2005 and 2009, construction of new dwellings, including second homes, has averaged 45,000 per year. Between 2010 and 2013, 186,000 new dwellings were built. If the number of households continued to grow by 40,000 per year, the number of dwellings constructed should therefore cover households' needs (160,000). These numbers are nevertheless for the country as a whole, and the Brussels region continues to report some supply shortages.
Future trends
We believe Belgium's house prices could face downward pressures related to uncertainty over the future of fiscal incentives for house purchases. An improvement in the domestic economy could nevertheless offset this weakness somewhat and extend price rises into this year and next, although the magnitude of the increase would likely be less significant than in the past. Uncertainties over, or an end to, certain tax measures encouraging home buying are likely to curb housing investment, in our view. First, the tax amnesty DLU, which allowed residents to regularize undeclared funds held abroad and repatriate them to Belgium in exchange of a financial contribution, expired at the end of 2013, so that fewer funds will be repatriated to Belgium, therefore reducing household investment in housing. Second, the "Bonus Logement" (tax deductions on the capital and interest payments of a mortgage loan on a primary residence) will be administered at regional rather than national government level by 2015, thereby increasing uncertainties as to whether regions would maintain or reduce the fiscal advantage. Meanwhile, while we expect real GDP to expand 1.1% this year and 1.4% in 2015, households' income will unlikely increase at the same rate. This is because Belgian consumers will likely continue to struggle with still evolving austerity measures. With fewer fiscal incentives and slow real disposable income growth, households are unlikely to be able to absorb large additional house price increases. The affordability (price-to-income) ratio is well over its long-term average, suggesting that homes may be overvalued by 60%, and are still among the least affordable in the EMU. A possible rise in mortgage interest rates would also cut affordability. Because inflation is weak in the eurozone, the European Central Bank (ECB) is likely to keep its policy rates at 0.25% this year and next, and possibly introduce additional unconventional measures in the second half of 2014. Consequently, Belgian interest rates should continue to increase, but only gradually.
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Positively, we think that housing investments remain attractive to investors in Belgium and Brussels, who are looking for safe and relatively inexpensive assets to purchase. An apartment in Brussels cost 226,000 on average in 2013 compared with 390,000 in Paris, according to Century21, a real estate agency, or 414,000 (500,000) in London, according to figures from the Land Registry. This could help support prices.
Table 2
Belgium Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate 2.0 2012 1.5 2013f 1.7 2014f 1.0 2015f 0.5
1.8 3.3 7.2
(0.1) 2.6 7.6
0.2 1.2 8.4
1.1 0.9 8.5
1.5 1.3 8.2
f--Forecast. Sources: Standard & Poor's, Eurostat, Banque Nationale de Belgique, OECD, and Statistics Belgium.
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French House Prices Are Still Contracting Modestly

We expect the modest correction in French house prices experienced in 2013 to extend through 2014, with prices declining by 2% (see table 3). Yet, the still widening gap between supply and demand will prevent a more severe downturn, in our view. What's more, we forecast that a pick-up in economic growth in 2015 will help house prices bounce back, rising by 2% year on year. Yet, downside risks remain, and market conditions will stay vulnerable to sudden spikes in interest rates.
Recent trends
Economic activity picked up somewhat in the second half of last year. GDP rose 0.2%, according to the latest release from the French statistical office, thanks to a modest increase in private consumption by 0.4% after -0.3% a year earlier. Nevertheless, unemployment continues to rise. In February 2014, the number of job seekers jumped by 0.9%, the biggest rise since April 2013, lifting the unemployment rate to 10.9%. Despite this weak economic environment, the housing market remained remarkably resilient. Prices dropped by just 1.4% in the 12 months to December 2013. The number of transactions declined through the better part of 2013, but recovered by year-end, and were up 10% in the 12 months to January 2014 (see chart 2). Even though prices have declined modestly, the market remains expensive by historical standards. The average price for a dwelling was equivalent to 3.82 years of income in the fourth quarter of 2013, still very close to the peak recorded in early 2011 (3.9 years), according to the Observatoire Credit Logement. Financing conditions have also continued to support the market. Interest rates rose very modestly in the second half of last year, yet at an average of 3.08% in the final quarter, they remain at historical lows. Bank financing has also helped the market. Housing loans were up 3.8% in the 12 months to February. Nonetheless, as access to zero-interest loans for low-income households has become much more restricted since 2012, the number of first-time buyers has continued to decline. In addition, the buy-to-let segment has been negatively affected by the prospect of tighter controls on rents that the government is introducing in 2014. Real estate agents report that buy-to-let investors only represented 14% of total transactions in 2013. A chronic lack of supply continues to dominate the market outlook. In this respect, 2013 was a particularly bad year, with building permits down 18%. Demographic and sociological trends suggest France needs about 450,000 new dwellings per year. The authorities targeted 500,000 new dwellings last year, but the actual number was 330,000. Therefore, gap between supply and demand keeps widening.
Future trends
We expect the French economy to experience a modest revival this year, with GDP growth averaging 0.7% (see table 3). The increase in the tax burden on households and the still high unemployment will continue to weigh on consumer demand. Investment, on the other hand, should gradually recover after several years of decline spurred in part by the pro-business measures introduced by the government. Growth in 2015 should accelerate somewhat, in our view, with a more favorable global environment providing support to French exports. GDP growth could then reach 1.4%. Our forecast for a modest 2% fall in prices this year takes into account a modest rise in interest rates, while
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unemployment will continue to increase through the year. We nevertheless expect the current correction to end in 2015, as insufficient supply takes the upper hand. As economic growth picks up, improved confidence is likely to bring more potential buyers back to the market. Yet, the French housing market remains exposed to external shocks. Affordability has not improved since 2009, and demand remains very dependent on bank credit and low interest rates. Were the latter to spike because of tensions in international capital markets--a development we do not currently anticipate but can't rule out--the market could turn quite rapidly.
Table 3
France Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate 3.8 2012 (2.1) 2013f (1.4) 2014f (2.0) 2015f 2.0
2.0 2.3 9.6
0.0 2.2 10.2
0.2 1.0 10.8
0.7 1.2 11.0
1.4 1.2 11.0
f--Forecast. Sources: Standard & Poor's, Eurostat, OECD, and INSEE.
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German Home Prices Are Still Rising, But At a Slower Pace

We forecast house prices in Germany will rise by 4.5% this year and by 4% in 2015 (see table 4), a still healthy rate but slower than last year's 5%. Low unemployment, rising consumer confidence, and rising immigration are fueling prices. But a housing bubble is not in prospect: the current market rise follows a decade of price stagnation, while tight regulations keep Germany still largely a nation of renters
Recent trends
While house prices as a whole increased by 5.0% in 2013, according to the Hypoport Group Index, prices in 125 cities climbed much faster, by 6.3% in 2013 and by 19% since 2011, according to Bundesbank statistics. On the supply side, housing construction continues to increase markedly, with total permits for dwellings climbing 13.4% year on year in December 2013 (see chart 3). Nevertheless, supply is still limited, which is pushing prices higher. Following the exuberance and oversupply in the market post German reunification, the dwellings' overhang eroded
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between 1994 and 2010. The 270,000 permits delivered in 2013 and an estimated 220,000 dwellings to be completed this year are still below the 260,000 new dwellings per year that the Bundesbank estimates necessary to cover additional demand. On the demand side, persistently good German income and job developments are solidly underpinning private consumption and consumer confidence. Gross disposable income increased by 2.1% year on year in Q3 2013, compared with just a 0.2% rise in the eurozone. The tight labor market, with an unemployment rate that slowed to 5.1% in February 2014, puts labor unions in a good position to negotiate substantial wage increases. In February, chemical industry employers quickly agreed to a wage hike of 3.7% over the next 14 months. GfK, the consumer climate indicator, extended its ascent, with income expectations rising to the highest level since 2011. High immigration is also supporting demand for housing, mainly in the largest cities. According to Destatis, net migration to Germany (the difference between immigration and emigration), increased by 13% in the first half of 2013 to 206,000 people, after 370,000 in 2012, the highest level since 1995. Loose financial conditions, including still very low interest rates, are also bolstering demand for housing and increasing households' borrowing capacity. Since November 2013, average interest rates on new mortgages started to decline again to 2.83% in February. However, banks' mortgage lending growth is still modest, rising by 2.0% year on year in February this year. Given that credit growth remains only modest, we believe price increases are also due to foreign investments in German real-estate. With the real-estate market in several European countries still in the doldrums, the German property market, which had been stagnant for many years, is becoming more attractive to international investors. The housing market in the seven largest cities--Berlin, Dsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich, and Stuttgart have gained 9.0% per year since 2011.
Future trends
Leading indicators suggest the upswing in the housing cycle will continue in 2014, albeit at a more modest pace than last year. Despite the fall in the business climate index in construction in March, it remains significantly higher than the long-term average. The increase in permits, after 15 years of declining construction investments, will result in rising dwellings' completions that will lower price pressures over the medium term. Macroeconomic indicators are still driving house price growth. We forecast real GDP will strengthen by 1.8% this year and 2% in 2015, above the average of most European peers. We forecast the unemployment rate will remain at a low 5.2% in 2014 and 5.1% in 2015, although strong migration flows should limit the decline. Low financing rates and a yearning for financial safety has been lifting housing demand since 2010 and will continue to do so for some time without leading to a housing bubble, in our view. The increase in prices has occurred from a fairly low base. Between 2000 and 2010, prices barely expanded, keeping the price-to-income ratio 25% below its long-term average in December 2010. Since then, the ratio has been trending upward, indicating an undervaluation of 17% as of December 2013. What's more, housing-loan growth has so far been very modest and has even decelerated in recent months, reducing the prospect of a credit-fueled bubble. Home purchase loans rose by only 2.0% in February, after gaining 2.4% in September and 2.5% in August 2013, reflecting tightening lending standards. Structurally, German households continue to favor rental rather than owned property, although rents have also increased since 2011 in tow
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of higher purchase prices. High capital requirements limit the desire for home ownership, while strong regulation and a large rental sector continue to favor the rental market. Rent controls are stricter in Germany than the average in European countries. Hence, home ownership is low, at 43% in 2013 compared with more than 80% in Spain. We expect financial conditions to remain supportive until 2016. Because inflation is weak in the eurozone, the ECB is likely to keep its policy rates at 0.25% this year and next, and possibly introduce additional unconventional measures in the second half of 2014. Consequently, we forecast yield increases on the 10-year German government bond to remain limited, rising to 2.0% this year and 2.4% in 2015. As uncertainty related to the eurozone debt crisis continues to slowly recede, and growth in the larger economies picks up, investment in Germany is likely to become less attractive and raise investor interest in other financial assets.
Table 4
Germany Housing Market Statistics

3.3 2.5 6.0
0.7 2.1 5.5
0.4 1.6 5.3
1.8 1.4 5.2
2.0 1.5 5.1
f--Forecast. Sources: Standard & Poor's, Eurostat, and Hypoport.
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Ireland's Two-Speed House-Price Recovery Continues

The housing market recovery in Dublin, the Irish capital, is racing ahead of the rest of the country. Prices are now 17.3% higher than their low point in August 2012, compared with just a 4.5% rise in the rest of the country from their low point in March 2013. We nevertheless expect that residential prices will expand by 3.5% this year in Ireland as a whole (see table 5), even though supply shortages in urban areas have exerted upward pressure. What's more, we don't expect the housing market revival to stay as strong beyond 2014. Bank lending conditions remain tight and high mortgage arrears will maintain downward pressure on house prices, in our view. We therefore forecast that house prices will rise by just 2% in 2015.
Recent trends
Outside Dublin, residential property prices have started to increase this year. Prices rose by 4.2% year on year in February after 1.2% in January, and they are 4.5% higher than their trough in March 2013. In the capital, meanwhile,
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price increases have started to ease somewhat from last year. In February, prices rose by 13.3% year on year, after gaining 15.7% in December 2013, and are 17.3% up from their low point of August 2012. As a result, house prices nationally accelerated in February, gaining 8.1% year on year. Reflecting the upward momentum in the housing market, the Property Services Regulatory Authority indicates that transactions were up 8.4% for the country as a whole during Q1 2014 on Q1 2013. Transactions are still below par, however, estimated at 29,500 for 2013, or 1.5% of the housing stock (see chart 4). Still, leading indicators of construction activity suggest a pickup is imminent. The number of new house guarantee registrations, which largely reflect developer activity, doubled nationally in 2013 on 2012. Figures for housing starts are also promising, with 343 registrations in the two first months of 2014 compared with only 155 for the same period a year early. Housing starts also picked up in January to 904 units versus 342 in January of last year. The improving picture in the property market supply is nonetheless still not evident in housing completion data. In the 12 months to February, the total number of completions stood at 8,473, only 1.6% higher than in the same period of last year. This is an unprecedented low point. Completions before the housing boom averaged 20,000-25,000 units per year and 70,000 units per year during the boom years.
Future trends
The improvement in the economy and the labor market, and limited supply in certain urban areas will help support the residential property market in 2014, in our view. Despite the disappointing contraction during the fourth quarter of 2013, we expect the economy to have rebounded in the first quarter of 2014. The recovery should continue through the year, driven by improving external demand from its main trading partners, the U.S. and the U.K., as well as by firmer domestic demand. For 2014, we forecast GDP growth will gradually pick up to 1.8%, and to 2.4% for 2015 (see table 5). Although unemployment remains high, the labor market situation has improved in recent months and we expect this trend to continue this year and next, leading to an increase in housing demand. A rise in demand in a context of home supply shortages in some urban regions is likely put upward pressure on prices, leading to rises nationally. According to Sherry FitzGerald, a real estate agency, the cities of Dublin, Cork, and Galway are suffering from a shortage of property for sale, with respectively only 0.9%, 1.5%, and 0.9% of private housing stock advertised for sale in January 2014. Despite a recent pick-up in homebuilding commencements and registrations, the mismatch between supply and demand is likely to persist, so maintaining the upward pressure on prices. We nevertheless don't expect the recent increase in house prices to stay as strong beyond 2014. Financing conditions remain difficult and mortgage lending low. The latest data from the Central Bank of Ireland indicate that lending for house purchases declined by 3.8% year on year in February after falling 4.1% in January. What's more, the extent of mortgage repayment difficulties will likely put pressure on mortgage lenders and households. The low volume of mortgage lending suggests that a large portion of sales were still cash transactions. Therefore, a recovery in prices is likely to remain slow and uneven. The latest quarterly report from the Bank of Ireland showed 96,474 (12.6%) of residential mortgages were in arrears for more than 90 days at the end of December. This is down from the 12.9% at the end of September, but still much higher than 11.9% at the end of December 2012. Households and banks will therefore need some time to work through the large stock of arrears.
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Table 5
Ireland Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate (15.9) 2012 (6.1) 2013f 6.0 2014f 3.5 2015f 2.0
2.2 1.1 14.7
0.2 2.0 14.7
0.0 0.5 13.1
1.8 1.2 12.4
2.4 2.0 11.8
f--Forecast. Sources: Standard & Poor's, Eurostat, OECD, and Central Statistics Office.
Italy's Residential Prices Will Continue To Fall in 2014

The slump in the Italian residential housing market continues on the back of a weak domestic economy and persistent pressures on credit. Assuming a modest strengthening of the economy, however, we forecast price declines will slow
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to just 1.0% in 2014 and start to climb again by 1% in 2015 (see table 6).
Recent trends
After falling 6.1% year on year on the first quarter of 2013, the rate of decline in house prices eased to 5.9% in June and 5.4% in September, according to latest available data. The latest survey of the Italian housing market by Banca d'Italia showed that house prices also declined during the fourth quarter of 2013. Meanwhile, home sales transactions fell by 2.3% in 2013 compared to 2012. This is less than the annual decline of 10.5% in 2012, suggesting some signs of stabilization in the market. The residential property market nonetheless remains weak, with just 403,000 transactions in 2013 compared with 869,000 in 2006, according to the Revenue Agency's Real Estate Market Observatory (see chart 5). The downturn in Italy's residential property market reflects weakness in the domestic economy and persistent pressures on the credit market rather than a correction of an overvalued housing market, in our view. The unemployment rate rose to 12.2% in 2013 from 10.7% in 2012 and continued to climb in the first two months of the year reaching 13% in February. Household real disposable incomes increased slightly by 0.4% in the final quarter of 2013 compared with a year earlier, according to ISTAT, the Italian statistical office. Nevertheless, consumers have endured a prolonged retreat in real household disposable income, which has dropped 7.7% since the first quarter of 2009. This reflects a higher tax burden on households as a result of fiscal consolidation, and consumer price inflation that was outstripping nominal wage growth until recently. Emigration has also stemmed housing demand. Youth unemployment at 42.3% in February 2014 is among the highest in two decades, and has encouraged more Italians to leave the country in search of employment. Latest data available indicates that emigration rose by 29% in 2012 on the previous year, with Germany, Switzerland, the U.K., and France the main destinations. In 2013, the number of Italians applying for work-related national insurance numbers in the U.K. was up 75% on 2012. Lending conditions to households also remain difficult, although early indications show some signs of easing. Net lending for house purchases was down 1.2% year on year in February. However, the bank lending survey for the fourth quarter of 2013 indicates that banks started to ease their supply policies to households on the back of less unfavorable prospects for the housing market, while household demand for mortgage loans stopped weakening.
Future trends
Assuming a modest strengthening of the economy, we expect that the contraction in house prices will ease in the course of 2014. We expect real GDP to rise by 0.5% in 2014 and 0.9% in 2015, and the unemployment rate to remain as high as 12.5% in 2015 (see table 6). Further fiscal headwinds are likely to deter a housing market recovery. The government has introduced a new real estate tax, TASI (Tassa Servizi Indivisibili) to replace the much contested housing tax IMU (Imposta Municipale Unica) from January 2014. The property tax will affect both first and second homes, but its structure is more complicated and rates will depend on local authorities, thereby increasing uncertainty for house buyers. Supporting an ease in house price declines, however, the real estate market itself does not show signs of significant overvaluation. The price-to-income ratio, a good indicator of affordability, has declined markedly from its 2009 peak and is now close to its long-term average. Similarly, the price-to-rent ratio remains at its historical average. Provided that more benign sovereign financing conditions persist, the contraction in lending to households should also ease.
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Italian sovereign 10-year bond yields have tumbled to record lows at pre-crisis levels, reaching 3.16% on April 10, 2014. Lower sovereign bond rates should reduce funding rates for banks, leading to lower mortgage rates. Average interest rates on new mortgages have decreased by almost one point since February 2012 to 3.43% in February 2014, and we think the downward trend is set to continue. Added to this, outstanding mortgages in Italy represented 45% of GDP in September 2013, significantly below the eurozone average of 64% of GDP, suggesting that households could assume more debt.
Table 6
Italy Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate 0.4 2012 (5.2) 2013f (5.0) 2014f (1.0) 2015f 1.0
0.4 2.9 8.4
(2.4) 3.3 10.7
(1.9) 1.3 12.2
0.5 0.7 12.7
0.9 1.0 12.5
f--Forecast. Sources: Standard & Poor's, Eurostat, OECD, and Nomisma.
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The Netherlands' Housing Market Is Stabilizing

After five years of price declines, the housing market in The Netherlands is starting to stabilize. House prices and transaction numbers are slowly rising, owing to an improvement in the economic situation, increased affordability of houses, more stability in fiscal policy reforms, and limited housing supply. We don't foresee much of a recovery this year or next given that domestic demand should remain sluggish in 2014-2015, while credit constraints continue to weigh. We therefore expect house prices to stabilize in the course of this year, rising by 1.0% in 2014, and by 2.0% in 2015 (see table 7).
Recent trends
Demonstrating the continued trend toward stabilization, house prices rose by 0.4% in the two first months of 2014 after gaining 1.2% during the second-half of 2013, according to Statistics Netherlands. On an annual basis, house prices are still falling but at a decelerated pace: by -1.7% year on year in February after -4.2% in 2013 and -7.3% in 2012.
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Meanwhile, transactions over the past six months until February rose by 13% from the same period last year. Still, at nearly 115,000 in the first 12 months to February, home sales are still half the average level of transactions seen between 2000 and 2006 (see chart 6). Several factors are supporting the recent stabilization. Confidence has gradually returned to the housing market as households' assessment of the economic situation improves. In the final quarter of 2013, The Netherlands was among the eurozone's best-performing economies, with growth of 0.8% year on year. Also underpinning the house-price rebound is the increased affordability of homes. While house prices had tumbled 20% since 2008, the price-to-rent ratio was only 5% above its long-term average in December 2013, owing to adjustments in rental regulation that has caused rents to rise. The price-to-income ratio has also declined since 2008, although it remains 23% above its long-term average (see chart 6). Lower mortgage rates are improving housing affordability, too. Interest rates of 3.5% on average on new loans are now two points lower than at the beginning of the price slump. Further adding to house buyers' confidence, discussion about fiscal policy reform of the housing market appears to have abated. Meanwhile, a structural deficit of housing supply, exacerbated by low building activity, and an underdeveloped rental market are further supporting a recovery in prices.
Future trends
Several difficulties will prevent a strong recovery in the Dutch housing market, in our view. First, we expect the economy to remain on a relatively modest recovery path in 2014 and 2015, with real GDP expanding by 0.8% in 2014 and 1.3% in 2015. Domestic demand should also remain under pressure. Job uncertainty, coupled with decelerating wage growth in real terms, and high debt will weigh heavily on demand for housing in 2014. Unemployment is likely to continue to rise in the course of 2014, averaging 7.5%, before declining next year to 7.2%. Households are also likely to increase their savings' rate to repay their debt. Added to this, The Netherlands' household debt ratio is the highest in the eurozone at 126% of GDP. This ratio has only just started to decline since 2012 from a peak of 128.7% in September 2012. However, the number of people in arrears has remained modest: 92,000 households were struggling to pay their mortgage costs in October 2013 out of 3.5 million mortgages in total, according to the Central Credit Registration Office (BKR). It nevertheless reported that these figures were stabilizing. Meanwhile, negative equity is preventing most vendors from putting their homes up for sale at realistic prices. This is in spite of recent fiscal policy measures, which make interest paid over residual debt deductible for 10 years. Changing mortgage regulations will also weigh on loans granted for homes. Loans weakened to 0.4% year on year in February 2014 compared with 1.4% in February 2013. Rules reducing the maximum amount that home buyers may borrow on the basis of income and setting a maximum loan-to-value of the property, will also restrict loans. Since Jan. 1, 2014, loan to value has fallen to 103% from 104% in 2013 and will decline further to 100% by 2018. This suggests that potential house purchasers will need to put aside extra funds to pay additional fees and taxes related to buying a home. On July 1, 2014, the cost ceiling for a mortgage with a National Mortgage Guarantee (NHG) will be lowered from 290,000 to 265,000. The ceiling will be lowered annually to reach the level of the average house price. One the positive side for house price developments, the weakness in construction activity is aggravating the structural supply deficit in the country. In 2013, only 26,000 building permits for new houses were granted, representing a 30%
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decline on 2012. Since the onset of the economic crisis in 2008, the number of residential building permits has fallen by 40% to the lowest level since 1953.
Table 7
The Netherlands Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate (3.4) 2012 (7.3) 2013f (4.2) 2014f 1.0 2015f 2.0
0.9 2.5 4.4
(1.2) 2.8 5.3
(0.8) 2.6 6.7
0.8 1.0 7.5
1.3 1.0 7.2
f--Forecast. Sources: Standard & Poor's, Eurostat, Kadaster, OECD, and CBS Statistics Netherlands.
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Portugal's Housing Market May Start To Stabilize This Year

House prices in Portugal should begin to stabilize this year on the back of some modest economic improvements. We forecast prices will expand by 0.5% in 2014 and by 1.0% next year, after declining by 3% in 2013 (see table 8). However, high unemployment and high household debt will keep the lid on a house price recovery.
Recent trends
House prices contracted by 3.0% in 2013, as we had expected. The Portuguese residential property market experienced the heaviest decline since the beginning of the financial crisis last year. However, on a quarterly basis prices stabilized during the fourth quarter, only falling by 0.3%. Furthermore, recent indicators show a modest rise in sales. The RICS Portuguese housing market survey indicates that transactions picked up slightly in February. Market participants expect quite robust sales growth over the next three months, suggesting that prices may be close to bottoming out. The Portuguese economy expanded in Q4 2013 for the third successive quarter. Business sentiment has trended strongly upward since the start of 2013, and a stabilizing economic situation is starting to feed into companies' employment and investment spending. The unemployment rate fell sharply in the fourth quarter of 2013, and to 15.3% in January. Meanwhile, real investment spending rose for the third consecutive quarter over the same period. There are also signs that banks have started to gradually relax their credit conditions, although they remain very tough. Housing loans have declined steadily since the end of 2011 (see chart 7). Meanwhile, the proportion of nonperforming mortgage loans as a percentage of total loans keeps rising, hitting 2.3% as of January 2014, according to Portugal's Central Bank. Still, with the unemployment rate trending downward, we think the nonperforming loan ratio may be close to peak.
Future trends
We forecast growth will accelerate in 2014 and 2015, as improving confidence should continue to drive improvements in employment and investment. We expect Portugal's real GDP will rise by 0.8% in 2014, before growing 1.4% in 2015. Against this backdrop, we expect the real estate market to stabilize over the coming two years. However, price rises will likely be limited, as housing demand will stay constrained. Labor market conditions also remain difficult. Despite the fall in unemployment, the jobless rate will stay very high. Household indebtedness also remains high, despite the recent correction. It fell from a peak of 94.6% of GDP in December 2009 to 87.3% of GDP during the third quarter of 2013, but this is still far above the eurozone average of 64%. On a positive note, mortgage interest rates are likely to decline after sovereign bond yields experienced record lows in recent weeks. Nevertheless, given their high indebtedness, households will be reluctant to take on more debt, particularly in an environment of high unemployment. Furthermore, tighter fiscal policy, including sharp public spending cuts and substantial increases in direct taxation will encourage households to keep saving because the duration of fiscal austerity measures remains uncertain. Added to this, Portuguese citizens continue to leave the country in search of employment, pushing down housing demand. Latest official data indicate that 120,000 people emigrated in 2012, the main destinations being France, Luxembourg, Switzerland, the U.K., and former colony Angola.
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Over the long term, the market may benefit from more positive structural factors. The affordability index (price to income), in particular, continued to hover around an all-time low in the final quarter of 2013, comfortably below its long-term average. We believe policies that Portugal has implemented in the context of financial support from the IMF will help revive the market. Activity in Portugal's residential construction sector has steadily weakened since 2000 (see chart 7) because tenancy laws have discouraged buy-to-let investors by giving tenants controlled rents and protecting them against eviction. Housing construction remains very weak, with the number of construction permits issued in the 12 months to January down 29% on the previous year, bringing the total number to 7,400 a year compared with 65,000 in 2007 and 120,000 in 1999. However, the housing rental market reforms are making the market more dynamic, enabling landlords to update rents, giving them more flexibility in the choice of contract duration, setting better incentives for renovation, and providing new and fast extrajudicial eviction procedures. Since 2011, rents have been rising, while at the same time prices were on a decline. As a result, the price-to-rent ratio has reached an all-time low, suggesting that the market may be undervalued by 15%.
Table 8
Portugal Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate (0.8) 2012 (2.7) 2013f (3.0) 2014f 0.5 2015 1.0
(1.3) 3.6 12.9
(3.2) 2.8 15.9
(1.6) 0.4 16.5
0.8 0.8 16.9
1.6 1.2 16.6
f--Forecast. Source: Standard & Poor's, Eurostat, and BIS/private sector.
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Spain's House Price Slump May Bottom Out Next Year

The slump in house prices decelerated in Spain in 2013 on the back of improving economic conditions and rise in housing demand from foreigners. Still, we don't think Spain's property sector has turned the corner just yet. Supply continues to significantly exceed demand, while credit conditions remain tight. What's more, the Spanish real estate market still appears between 9% and 18% overvalued compared with incomes, rents, and long-term averages. We therefore forecast house-price declines of 2.0% in 2014 and zero growth in 2015 (see table 9).
Recent trends
Home prices in Spain declined by 4.6% year on year in the fourth quarter of 2013 after falling 5.3% on the previous quarter, according to OECD estimates based on Bank of Spain data. The National Statistics Institute's report of a rise in residential prices in Q3 2013 prompted over-optimistic views of an imminent recovery in the Spanish housing market, in our view. Final-quarter data was disappointing, showing a decline of 1.3% quarter on quarter.
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Nevertheless, the ease in price declines suggest that Spain's economy is gradually recovering, but signals above all that more foreign private buyers and investors are buying property in Spain, which is supporting prices. The rate of the decline in house prices in 2013 was slowest in coastal areas such as the Balearic Islands and Cantabria, two tourist regions where prices even registered quarterly increases during the second half of the year. The number of foreign buyers increased by 10% in 2013 and accounted for 21% of all Spanish residential sales, according to Spain's notaries. Meanwhile, home sales continued to fall by 27.5% in 2013 compared to 2012. What's more, even though the banking sector has undergone a deep restructuring process, this has not yet translated into looser financial conditions for households. In February 2014, bank mortgage lending was still falling at a rapid pace of 4.1% year on year. Weak demand, but also funding constraints are still weighing on Spanish credit growth. The banks' ratio of nonperforming loans was 13.5% in January, up from 10.8% a year earlier.
Future trends
We think prices will decline this year before bottoming out in 2015. Fundamentals are improving only gradually. After the Spanish economy's emergence from recession last year, we believe the recovery will be moderate, with the economy growing by 0.8% this year and by 1.4% in 2015. Spain has regained competitiveness, owing to adjustments in unit labor costs and implementation of structural reforms. This will enable exports to grow more rapidly this year. However, negative drags persist on domestic demand as consumers are struggling to cope with high unemployment, shrinking home equity, and still excessive debt. While unemployment is likely to gradually decrease to 24.5% by 2015, it remains extremely high, depressing households' disposable income. Although household debt is declining (to 78% of GDP in the third quarter of 2013 from a peak of 87.4% in Q2 2010) it remains well above the eurozone average 64% of GDP. Deleveraging is slow because households' disposable incomes are still falling. An increase in the savings rate in line with deleveraging will only be possible once real disposable incomes start to increase. Still, even if construction of new buildings has been very slow in recent years, the excessive stock of unsold houses will continue to weigh on a price recovery. The very high stock of unsold new homes casts doubt on prospects for a sustained recovery in prices. The number of unsold new homes has only fallen by 10% from its 2009 peak to reach 583,453 at the end of 2012 (latest available data from the Ministry of Housing). Meanwhile, housing construction starts and completions are reaching historically low levels: in 2013 only 13,000 houses started and 60,000 were completed. This is well below the 250,000 buildings constructed on average prior to the housing boom and the peak of 689,000 units built in Q3 2008. Housing completions are well below new demand for housing, which is helping to balance out supply and demand. Furthermore, although the affordability index, measured by price to income, has improved, it remained 9% above its long-term average in the fourth quarter of 2013. The price-to-rent ratio, too, was 18% above its long-term average in December 2013. A study published in February by idealista.com, a property website, show that offers to buy Spanish homes fell short of asking prices by 23% on average in 2013, dampening expectations of a recovery in the housing market. Over the longer term, demographic trends will also weigh on housing demand and house-price growth. The population continued to shrink in 2013, by 0.9% relative to 2012 to 46.7 million, according to national statistical office (INE) data. Last year, INE released its population projections, showing an expected decline of 2.6 million over the next 10 years as
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a result of population aging and continuing migration outflows similar to those observed in 2013. A shrinking population would clearly cap overall potential growth in housing demand over the next decade.
Table 9
Spain Housing Market Statistics

2011 Nominal house prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate (7.1) 2012 (10.5) 2013f (4.6) 2014f (2.0) 2015f 0.0
0.1 3.1 21.7
(1.6) 2.4 25.0
(1.2) 1.5 26.4
0.8 0.1 25.7
1.4 0.6 24.5
f--Forecast. Sources: Standard & Poor's, Eurostat, Banco de Espana, and OECD.
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Swiss House Prices Are Still Rising, But More Modestly

The Swiss housing market has steadily gained in value by 50% over the past 15 years, and rose by a healthy 4.6% year on year in 2013. One reason for this is strong housing demand, particularly from immigrants from the EU. We expect house price inflation will ease this year and next, to 2.0% and 2.5%, respectively, owing to macro-prudential measures taken by Switzerland's Federal Council to cool the housing market, limited housing affordability, an increase in housing supply, and perhaps lower immigration flows (see table 10). Continuing economic growth and relatively loose financial conditions, however, make price falls in Switzerland unlikely.
Recent trends
Home prices expanded by 4.6% year on year in the fourth quarter of 2013, after 5.0% in the third quarter, and 3.7% on average in 2012. Since 2000, residential real estate prices across Switzerland have increased by an average of 3.5% per year. In some urban regions, such as Geneva, prices have surged by 120%, reflecting a rise of up to 6% per year over the same period. Part of the reason for this price appreciation has been a growing population, rising incomes on the back of employment gains, and rising wages. Annual employment expanded by 1.3% in 2013, after 1.5% in 2011, and 2.3% in 2012. Meanwhile, immigration rose by 8% in 2013 on the previous year. The gradual opening up of the Swiss labor market to EU citizens following the June 2002 bilateral agreements with the EU has encouraged companies to hire increasing numbers of foreign workers to counter labor shortages. More recently, the eurozone debt crisis has also encouraged greater labor migration within the EU and to Switzerland, leading to a net annual immigration flow to Switzerland of around 0.8% of the population in recent years. Limited housing supply has also put upward pressures on prices in some urban regions of Switzerland. Strict laws and lengthy procedures that limit construction in certain zones and rigorous construction standards restrict supply and investment in housing. Consequently, housing investment is one point below the Organization for Economic Cooperation and Development (OECD) average, at 3.2% of GDP in 2013. Financial conditions have also fueled house price growth. Financing costs are low (see chart 9), which is increasing household borrowing capacity and boosting mortgage lending growth. Lack of investment opportunities on the capital markets and low returns on financial assets have also pushed up demand for residential property as investors search for yields.
Future trends
We expect house price rises to ease this year, owing to policy measures, limited housing affordability, an increase in housing supply, and perhaps lower immigration flows. The Swiss Federal Council's decision this year to double the size of the capital buffer that banks must hold to guard against mortgage write-downs (to 2% of risk-weighted positions secured by residential real estate) to combat growing imbalances in the housing market is likely to ease the pace of credit growth. These measures appear to have already led to a slowdown in house-lending growth: housing loan growth slowed from 4.9% year on year in November 2013 to 3.8% in January 2014. Add to this, housing is becoming less affordable. Latest OECD data on price-to-income ratios show that the market was undervalued by only 6% in December 2013 compared to 15% in 2010. The price-to-rent ratio indicates the market is only 1% overvalued compared to its long-term average.
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Strong investment in residential construction will also likely cool house price rises. Latest data show a surge in the number permits for residential property in March 2013 to 56,000 compared with 46,600 in March 2012, suggesting that housing completions are likely to have surpassed 45,000 dwellings in 2013. The Swiss vote in February to restrict free labor mobility through a quota system will, if implemented, also limit housing demand for immigration in the medium term. Immigration growth has boosted house prices and rents in recent years, especially in urban regions. The government still has to come up with new legislation fleshing out the detail regarding immigration quotas within three years. What's more, the negative response to this vote from the EU will make it difficult for Switzerland to avoid negative consequences for its economy if the legislation goes through. Nevertheless, we think the vote has clearly increased economic uncertainty, which in turn could cut housing investments, and slow down immigration flows and employment growth Expectations of a potential rise in interest rates could also dampen house price over the coming two years, in our view. We expect real GDP to accelerate above 2% for both 2014 and 2015, and inflation to remain subdued at 0.3% this year and 1.0% in 2015. We therefore expect the Swiss National Bank to keep its policy rate at its record low of zero throughout 2014 and at least the first half of 2015, leading to a gradual increase in Swiss interest rates. However, we think that a brutal normalization of interest rates on the back of a sudden dramatic weakening of the Swiss franc could trigger more downward pressure on house prices for 2015. The stock of residential mortgages in Switzerland is very high by historical and peer standards, at 109% of GDP in January 2014. This points to potential vulnerabilities should the level of interest rates rise significantly, although only one-quarter of mortgages are at variable interests rates.
Table 10
Switzerland Housing Market Statistics

1.8 0.1 2.8
1.0 (0.7) 2.9
2.0 0.1 3.2
2.2 0.3 3.0
2.5 1.0 2.9
f--Forecast. Sources: Standard & Poor's, Eurostat, OECD, and Department for Communities and Local Government.
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The U.K. Housing Market: Back To The Good Old Days?

The U.K. housing market revival has gained momentum in recent months alongside the overall economic recovery. House prices rose by 5.4% in 2013 and we expect an acceleration in 2014 to 7% (see table 11). In the longer run, the Bank of England (BoE) is likely to implement its first rate hike at the beginning of next year, leading to a cooling off in the economy, and the housing market in particular.
Recent trends
The U.K. economy outperformed its European peers in 2013, growing 1.7% against -0.4% for the eurozone. Household consumption, which accounts for about two-thirds of GDP, was the main driver of this revival, rising 2.2%. The housing market has played a key role in this. The 5.4% rise in house prices year on year in 2013 was supported by a surge in bank lending: the number of loans approved for house purchases increased 49% in February on a year earlier. Among several schemes introduced in 2012 and early 2013, the Funding for Lending scheme and the Help to Buy
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program targeted first-time buyers. The Funding for Lending scheme was refocused exclusively on businesses in November 2013 but Help to Buy remains in place. The BoE's accommodative policy has also succeeded in keeping interest rates ultra-low. As of February, the floating rate on new loans secured on dwellings was 2.5%, a new historical low. The most recent monthly reading published by Halifax points to a further acceleration, with prices rising 8.5% in the 12 months to March. Prices have now recovered half the ground they lost during the crisis (a 22% peak-to trough decline). Furthermore, the most recent survey published by the Royal Institute of Chartered Surveyors (RICS) reveals that the housing revival continues to spread across the country. The net balance of surveyors reporting rising house prices in March was 57%, after 47% in February, close to the peak recorded in 2002. Meanwhile, sales were the highest since the first quarter of 2008. This boom is no longer purely a London phenomenon. The reading for price increases in Wales is the highest since 2004, while those for the East Midlands and South West England are the highest since 2002.
Future trends
We expect the current revival in the U.K. economy to gain further momentum through the rest of 2014. Business surveys suggest that the recovery is now broadening to the corporate sector and leading to more balanced growth. Overall, we anticipate GDP growth will reach 2.7% this year. The housing market is likely to continue to perform strongly too. Favorable financing conditions, the continued drop in unemployment, and tight housing supply will provide a further boost to prices, which we see rising 7% this year. The longer term outlook, however, appears less certain. First, the rise in household consumption and the surge in demand for housing so far haven't been based on a rise in real incomes. Indeed, annual growth in average weekly earnings has remained below inflation since May 2010. Overall, real disposable incomes fell 0.4% last year, although consumer spending rose 2.2%. When consumption grew by an equivalent rate after the early 1990s recession, purchasing power was rising by 3.6%. In fact, the adjustment in real wages that has taken place in the U.K. has been one of the sharpest in Europe since the beginning of the crisis. The country has therefore achieved higher spending essentially through a drop in the savings rate and increased bank financing. Admittedly, the savings rate remains well above its pre-crisis lows and has room to drop further this year. But at some point real disposable income growth and consumption growth will have to converge. The house price-to-income ratio has been rising since the beginning of 2013 and is now 27% above its long-term average (see chart 10). As affordability continues to deteriorate, some moderation in price increases is likely to take place. The second uncertainty relates to the interest rate outlook. In February, the BoE modified the forward-guidance policy it had adopted in August 2013. The BoE had indicated that it would not begin considering raising interest rates from the current level of 0.50% until the unemployment rate declined to 7.0% and as long as three "knockouts" (relating to inflation, inflation expectations, and financial stability) were not breached. With the unemployment rate coming down much faster than the BoE envisaged when establishing forward guidance (it was 6.9% in the three months to February), the central bank has felt the need to amend its forward guidance. It will essentially base its interest-rate decisions on its view of the amount of slack in the economy. Essentially, it wants to see absorbed the spare capacity in the economy--which it estimates currently to be 1.0%1.5% of GDP. It will monitor how this is developing with reference
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to a "broad" range of indicators that include unemployment, labor-market participation, average hours worked, extent of involuntary part-time working, wages, labor productivity, and surveys of spare capacity in companies. At the same time, the BoE has repeatedly explained that it was likely to start a very gradual increase in interest rates before the slack is completely eliminated. Additionally, the BoE has said it will be closely watching developments in the housing markets in its newly created Financial Policy Committee. This aims to prevent the formation of a genuine house price bubble by adopting appropriate macro prudential measures, such as tighter mortgage affordability standards. Given the pace at which the economy is growing currently and our expectations that investment is now about to kick in, we anticipate that a first 25bps hike in interest rates will be announced in the first quarter of 2015, followed by another hike in the second half of the year. The most likely consequence, in our view, is that the housing market will cool off somewhat when the prospects of interest rate hikes become more imminent by the end of 2014.
Table 11
U.K. Housing Market Statistics

2011 Nominal House Prices (% change year on year) Real GDP (% change) CPI inflation (%) Unemployment rate (0.5) 2012 2.3 2013f 5.4 2014f 7.0 2015f 4.5
1.1 4.5 8.0
0.3 2.8 8.0
1.7 2.6 7.6
2.7 2.2 6.8
2.4 2.3 6.5
f--Forecast. Sources: Stabdard & Poor's, Eurostat, OECD, and Department for Communities and Local Government.
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Europe's Housing Market Recovery Is Not Yet On Solid Ground: Economic Research

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Europe's Housing Market Recovery Is Not Yet On Solid Ground: Economic Research

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Europe's Housing Market Recovery Is Not Yet On Solid Ground

APRIL 30, 2014 1

Europe's Housing Market Recovery Is Not Yet On Solid Ground

APRIL 30, 2014 2

European Housing Market Nominal House Price Forecasts

f--Forecast. e--Estimate. Sources: Standard & Poor's, OECD, and Hypoport.

Belgium's Housing Market May Soften Amid Fiscal Uncertainties

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Belgium Housing Market Statistics

1.8 3.3 7.2

(0.1) 2.6 7.6

0.2 1.2 8.4

1.1 0.9 8.5

1.5 1.3 8.2

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French House Prices Are Still Contracting Modestly

APRIL 30, 2014 6

France Housing Market Statistics

2.0 2.3 9.6

0.0 2.2 10.2

0.2 1.0 10.8

0.7 1.2 11.0

1.4 1.2 11.0

f--Forecast. Sources: Standard & Poor's, Eurostat, OECD, and INSEE.

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German Home Prices Are Still Rising, But At a Slower Pace

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Germany Housing Market Statistics

3.3 2.5 6.0

0.7 2.1 5.5

0.4 1.6 5.3

1.8 1.4 5.2

2.0 1.5 5.1

f--Forecast. Sources: Standard & Poor's, Eurostat, and Hypoport.

APRIL 30, 2014 10

Ireland's Two-Speed House-Price Recovery Continues

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Ireland Housing Market Statistics

2.2 1.1 14.7

0.2 2.0 14.7

0.0 0.5 13.1

1.8 1.2 12.4

2.4 2.0 11.8

Italy's Residential Prices Will Continue To Fall in 2014

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Italy Housing Market Statistics

0.4 2.9 8.4

(2.4) 3.3 10.7

(1.9) 1.3 12.2

0.5 0.7 12.7

0.9 1.0 12.5

f--Forecast. Sources: Standard & Poor's, Eurostat, OECD, and Nomisma.

APRIL 30, 2014 15

The Netherlands' Housing Market Is Stabilizing

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The Netherlands Housing Market Statistics