winter lies ahead for property market
Plus, 18 September 2009
When property market observers need a crisis yardstick, they use the
example of the 1980s, when prices slumped for about three years. They
then add that the market rebounded toward the end of that decade to
begin the rally that led to capital gains of more than 60 percent per
year on average.
All signs are now pointing to the fact that this coming winter will
be one of the most difficult in the last 30 years, as there is not
one single reason for the market to expect a rebound.
Analysts suggest that the housing market needs to overcome two major
problems before any rebound can occur. The first concerns the marketís
funding. Indications to date signal a further slowdown in new mortgage
loans during the fall.
Such indications have been evident since the end of last year, as the
housing credit expansion rate dropped from 11.5 percent in December
2008 to 5.2 percent in July 2009, posting a decline of over 50 percent.
Although the average mortgage credit expansion rate in the eurozone
last July was just -0.2 percent, the loans issued by banks were not
enough to get the housing market going.
Top bank analysts predict that by the end of the year the housing credit
growth rate could fall below 4 percent in Greece, which will further
reduce house transactions.
The reduction in funding leads to the second problem: the increase
of the already massive stock of newly built houses that remain unsold.
The size of the problem becomes more obvious when considering that
from 2006 to 2008 there were about 310,000 new houses entering the
market and adding to that the 65,000 houses expected to have entered
the primary stage of construction by the end of 2009.
All in all, about 400,000 houses were built in the last four years,
or one new house for every 10 households.
Under the current conditions, this high stock will take at least five
years to be absorbed. At the same time, the market is seeing a great
number of older houses being put up for sale which cannot be precisely
This picture is unlikely to change in the next six months, analysts
say. Many add that conditions will worsen this fall, with a very negative
impact on construction. Economists may think that excessive supply
combined with limited demand would lower prices but this is not expected
to happen before the end of the year. Already data show that average
prices have dropped by no more than 3.9 percent on a yearly rate.
This price decline is considered negligible and illustrates the healthy
condition of construction companies in the housing sector. Another
factor contributing to the steady prices is the fact that banks, unlike
in the United States and United Kingdom, appear reluctant to proceed
to auctions. The stagnation in new-house price tags also keeps the
prices of older houses relatively unchanged.
As a result, the market will likely have to wait for at least another
12 months before it rebounds but we are not going to see a major drop
in prices in the meantime.