Eurozone Housing, Mortgage Recovery to Continue in 2018


Wednesday, January 24, 2018 /01:28PM /Fitch Ratings 

Housing and mortgage markets across the eurozone will continue their bounce-back from the effects of the sovereign debt crisis, bolstered by supportive macro-economic conditions, Fitch Ratings says in a new report. However, regional variations within eurozone countries are growing, and affordability pressures are emerging in some locations. Outside the single currency bloc, Brexit uncertainty will continue to weigh on the UK and Norwegian prices will fall.

Our overall evaluation for seven of the nine eurozone countries in the report is stable/positive or positive. Mortgage performance will continue to strengthen across the major eurozone economies as GDP grows, interest rates remain low, and borrowers lock-in rates for as long as possible, reflected in increasing fixed rate originations in Spain and Italy.

We forecast zero growth in UK prices in 2018, and a small drop in London and the South East, a consequence of Brexit uncertainty, stretched affordability, and changes in the buy-to-let (BTL) market. Potential declines in real disposable income could contribute to a gradual and moderate rise in arrears in 2018. Average rents remain high, but would suffer in London and the South East if Brexit saw a net outward migration of workers.

The contrast between stronger and weaker housing markets within individual eurozone countries has become more pronounced, notably where metropolitan prices have outpaced those in rural areas, as in Germany. In the Netherlands, prices are set to surpass their previous 2008 peak by the end of this year, but affordability constraints are being felt in and around Amsterdam, where housing turnover has slowed.

Even in markets where national house prices are still well below pre-crisis levels, such as Spain and Portugal, wages are lagging prices and the limited savings power of first-time buyers (FTB) is reducing affordability in the most prosperous regions. In Italy, where we forecast national prices to rise by around 1% in 2018, the weakest regions have strengthened somewhat, but they continue to significantly lag the growth rates for the top performing regions in the north of the country.

Norwegian prices have begun to fall, and we forecast this to continue in 2018, bringing nine years of consecutive growth to an end. (Norway and the UK are the only European markets with stable/negative evaluations.) Falling prices in Oslo illustrate how it may take a combination of factors - eg, higher supply, falling immigration, stabilising mortgage rates, and regulatory intervention - to cool the hottest housing markets. Meanwhile, Danish prices are still rising, notwithstanding tighter lending regulation; we forecast a 7% increase in Copenhagen this year and consider this rate unsustainable.

Regulators have generally tried to cool housing markets in recent years, in response to overheating risk, but have also sought ways to help FTBs. For example, Ireland's central bank has loosened the minimum deposit requirement for FTBs and implemented a "Help-to-Buy" scheme. Ireland is the only market where we forecast double-digit price growth in 2018.

Fitch's sixth annual Global Housing and Mortgage Outlook includes forecasts for house prices, arrears, and mortgage lending across 22 countries and compares these trends between countries. The report is available by clicking the link, or at 

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