Housing boom a global phenomena?

From: Michael Croft

Low rates fuel European market
Feb 27
Jacqueline McArthur
Australian Financial Review

Low interest rates are fuelling a strong housing market across Europe, as they are in Australia.

New research by the Royal Institution of Chartered Surveyors attributes price rises to lower residential stock levels which have come after a sustained housing boom.

Spain is a standout investment arena, with house price rises refusing to quieten. But RICS has also detected a definite slowing in other areas.

The survey of 14 European countries found that home owners took advantage of low interest rates in the lead-up to the introduction of the euro to re-mortgage and use the extra capital to stimulate the retail market.

But towards the end of 2001 the house price boom experienced in most European countries showed signs of ending and the market began to divide into three distinct areas.

In France, Holland, Belgium, Germany, Ireland, Italy and the Scandinavian countries, the market showed signs of a downturn.

Prices are flattening, but there is no sign of a collapse in the market.

In Greece, Switzerland and the UK, prices continue to rise. In Spain, prices have reached levels that could prove to be unsustainable.

Knight Frank recently found Madrid - where prices have risen 150 per cent - and Milan were Europe's top performers.

But supply shortage and affordability issues are predicted to rule the markets in capital cities.

London, Stockholm, Madrid, Helsinki and the Dutch Randstad region have all experienced long-term booms where supply is weak, leading to greater price and market volatility.

But the RICS survey's author, Professor Michael Ball of London's South Bank University, found that the availability of property at the right price and location would become critically important for mobility of labour across the EU.

"Affordability could become an issue, particularly as key workers and people on modest incomes already have difficulty in finding suitable housing in urban areas in many countries," Professor Ball said. "Labour market flexibility in the EU may be seriously affected."

He said one of the common factors in all countries was a lack of supply because policies limited the amount of land available for building.

Many, the Scandinavian countries in particular, have the extra burden of high building costs.

There is also growing concern among financial institutions across Europe that the high levels of borrowing at low rates will leave home owners vulnerable should interest rates increase sharply.

Affordability problems, Professor Ball said, tend to be corrected by market readjustments at the end of periods of strong house price rises. But land policies need to change to avoid house prices and rents rising beyond the reach of many.

The RICs survey found the housing markets outside the euro-zone, such as the UK, are also behaving in a similar fashion, suggesting that housing market behaviour within the EU is coming closer together.
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Reply: 1
From: Anony Mouse

A pretty good article.
Most economists agree that as interest rates fall the value of real assets rise especially property.
Governments throughout the western world are fighting to stave off recession by artificially pumping more liquidity into the the banking system via reduced interest rates,which in turn is fueling a consumer boom.
Consumers are refinancing their lifestyles by having their properties re-valued and then consolidating all their loans into line of credit type loans. They basically have an ATM attached to the front wall of their properties. Governments are in a conundrum, if they allow interest rates to rise back to their real market levels, they will be accused of causing "the recession we had to have", if they don't, investment into productive activities will falter. Japan is a perfect example of this situation.
As the Chinese would say "we live in interesting times"

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
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