Hard winter lies ahead for property market
Athens 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 estimated.

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.