S&P sees eurozone, UK housing headwinds on swelling rates

Thrugelmir

A wider view of the European property markets.

S&P Report Predicts A Pause In Europe's Housing Markets

Fresh headwinds are gaining force in
Europe's real estate markets, said Standard & Poor's Ratings Services in a
report published today.

Fiscal retrenchment in many countries--especially in the U.K., Spain, and
France--will likely prompt potential buyers to camp on the sidelines. And the
specter of interest rate hikes in the coming 18 months, which is what we
forecast, will mark the end of central banks' largely accommodative monetary
policies in Europe.

"We expect housing markets to retreat in the U.K. and France, and remain in
the doldrums in Spain and Ireland. In contrast, steady market conditions
continue to prevail in Germany," said Standard & Poor's chief economist for
Europe, Jean-Michel Six, in a report published today, "Europe's Housing
Markets To Be Held In Check Between Fiscal Austerity And Tightening Monetary
Policy."

The ECB decision to raise its policy interest rate by 25 basis points (bps) to
1.25% on April 7, 2011, however, is a firmer departure from post-2008
consensus monetary policies. For the first time since June 2008, the
Frankfurt-based central bank reckoned that the eurozone's balance of
risks--between lower growth and higher inflation--was tilting toward the
latter, justifying higher interest rates.

In our opinion, the ECB's decision should be put in the broader context of the
exceptional measures it has adopted in the past 18 months. The central bank
has had to focus on a broader range of targets to restore confidence in the
eurozone:
Underpinning sovereign bond prices in the eurozone's periphery;
Curbing the price of liquidity available to financial institutions; and
Keeping a grip on retail prices.
The Bank of England's (BoE) response to steadily rising headline inflation in
the U.K. has so far been much more muted.

"In our opinion, however, a first rate hike seems almost certain in the coming three months. This is because, after the March blip, we think inflation is likely to take off once again, to peak around 5% in the third quarter," said Mr. Six.

The potential shift toward higher short-term interest rates will have various negative effects on European housing markets, including:
Upping reimbursements for current holders of mortgages with variable
interest rates, mainly in Spain and Italy; and Reducing the supply of new housing loans because financial institutions will have to refinance at higher costs.
Recent trends in mortgage approvals signal that the U.K. market is slowly weakening. Beyond the month-to-month seasonal variations, the BoE reports mortgage approvals down about 3% from a year earlier and amounting to less than half the average monthly rate between 2001 and 2006.

Overall we anticipate that the U.K. housing market will drift sideways in the coming 18 months, with prices shedding about 5% this year and roughly flat in
2012.

We see signals that the French residential real estate market is slowing,
after bouncing back spectacularly in 2010 following two years of contraction.

We anticipate a prolonged slump in Spain's housing markets. Prices may not
post massive drops in the coming 12 to 18 months as sales pick up slowly. But we think more time will elapse before supply and demand balance out again.

Irish house prices have, in our opinion, completed their correction but it
will take time--probably another couple of years--before we see tangible signs of market activity resuming.

We think prospective homebuyers may well hold off on acquisitions for awhile, given governments' implementation of fiscal austerity plans--particularly in the U.K., Spain, and France--and central banks' likely actions to raise borrowing costs in the next 18 months, which would halt accommodative monetary policies in Europe.

"We anticipate that the U.K. and French housing markets will likely fall back in the coming quarters, while the Spanish and Irish markets confront continued sluggishness," Mr. Six said.

http://www.standardandpoors.com/prot/ratings/articles/en/eu/?assetID=1245303990505

purch

S&P sees eurozone, UK housing headwinds on swelling rates

Yes it is hard to ignore the upward moves in longer term funding levels.

Change in Basis Points of Yield on 10 Year Funds over the last 6 months for the nations that make up the EAFE Index (Developed World less North America)

Australia +21

Italy +79

Austria +70

Japan +27

Belgium +91

Netherlands +78

New Zealand +20

Denmark +80

Norway +35

Finland +77

Portugal +369

France +65

Singapore +42

Germany +72

Spain +108

Greece +510

Sweden +32

Hong Kong +47

Switzerland +56

Ireland +366

United Kingdom +35

Some of these are already well into a tightening phase, some have just started, some are on the road to default, and some are stubbornly refusing to do anything.

Ultimately the market will determine the levels of longer term funding, whatever the Central Bank decides to do with short term financing rates, and the market is pointing higher.

LisbonLaura

The guy obviously hasn't a clue about Britain

& has never been to Aberdeen

michaels

Since when were 10 year rates closely correlated with the base rate?

purch wrote: »

Yes it is hard to ignore the upward moves in longer term funding levels.

Change in Basis Points of Yield on 10 Year Funds over the last 6 months for the nations that make up the EAFE Index (Developed World less North America)

Australia +21

Italy +79

Austria +70

Japan +27

Belgium +91

Netherlands +78

New Zealand +20

Denmark +80

Norway +35

Finland +77

Portugal +369

France +65

Singapore +42

Germany +72

Spain +108

Greece +510

Sweden +32

Hong Kong +47

Switzerland +56

Ireland +366

United Kingdom +35

Some of these are already well into a tightening phase, some have just started, some are on the road to default, and some are stubbornly refusing to do anything.

Ultimately the market will determine the levels of longer term funding, whatever the Central Bank decides to do with short term financing rates, and the market is pointing higher.

purch

Since when were 10 year rates closely correlated with the base rate?

Hardly ever.

They are correlated to longer term borrowing rates, which I assumed was the subject.

michaels

But the 'headwinds' mentioned seem to relate to increases in the base rate as (at least for the UK) this determines the pay rate for most mortgages.

purch wrote: »

Hardly ever.

They are correlated to longer term borrowing rates, which I assumed was the subject.

martyall

purch wrote: »

Hardly ever.

They are correlated to longer term borrowing rates, which I assumed was the subject.

Yeah right. I think that I must agree with you. Borrowing rates are really costly. :j