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The brick keeps Euroland worried. After the Federal Reserve's alarms on the US market, the European Central Bank also raised the risk of a bursting of the real estate bubble in Europe in its latest monthly bulletin.
According to the monetary authority, the level of interest rates at historic lows and the loss of confidence of families in alternative investments have led to staggering increases in the value of homes which can be considered a sign of the risk of overvaluation of residential properties. In Europe between 2001 and 2004 house prices increased on average by 6.6% per year, compared to the growth of 3.8% recorded in the period 1997-2000, reaching average increases of 7.7% in the first half of 2005, with particularly strong increases in France, Spain, Ireland and Italy.
As far as our country is concerned, the ECB's analysis is not reflected in the values ​​released by the most authoritative domestic real estate market observatories. «The ECB's cry of alarm - states Luca Dondi, analyst at Nomisma - is based on less than solid foundations, it is based on an assessment of the recent market dynamics that does not correspond to reality». A general identity of views emerges from the main research studies: in the first half of 2005 the growth in house prices was well below the 11.6% which pushed the ECB to include Italy among the most exuberant markets. They range from 3%, calculated on data released by the Land Agency, to 4.2% published by Consultant Immobiliare and Nomisma, for new and used homes respectively.
«These data - continues Dondi - fall within a framework of progressive cooling of the Italian real estate market, which has been evident for over a year. The markedly expansionary phase is now behind us and we can already measure the effects of a soft landing which removes the specter of the bursting of a non-existent speculative bubble". Indeed, the forecasts estimated by Gabetti for the next three years indicate a progressive trend towards zero growth: the decline in sales will see its peak in 2007 (-3.7%) and that of real prices in 2008 (-5.8%).
The healthy adjustment underway will prevent the Italian residential market from reaching a dangerous decline in prices. But after the double-digit annual returns achieved in the last five years, properties cannot be considered, in this market phase, the safe haven investments par excellence. The lengthening of the average search time for properties (over 4 months) demonstrates how families are already more cautious in making a purchase, the main motivation for which is increasingly the need for a first home, while purchasing for investment purposes has been significantly reduced.
Having set aside the risk of a speculative bubble, in a context of strong increase in demand for mortgages for the purchase of homes, a further cause for concern arises from the future dynamics of interest rates. The nervousness expressed by the ECB over the European real estate boom reinforces expectations for a next 'cautious' increase in the cost of money. Only a 'sustained' increase in rates, unlikely today, could damage the finances of the numerous families who have contracted a variable rate mortgage.
THE AXIS OF THE ALPINE ARC IS DECREASING
The real estate clock illustrates the market situation in the main European countries, highlighting their evolution and market cycles. The last few months have seen a slight decline in Switzerland, which has slipped into a phase of decline, despite remaining a solid and low-risk market, and in Austria, which has approached the critical zone. Finland, on the contrary, is emerging from a difficult period, also thanks to the expected introduction of Reits in the near future. In Ireland, Denmark and Poland, markets have grown significantly in the recent past and are moving towards maturity. Mortgage applications in the UK are decreasing due to rising interest rates. The German market is still weak, showing the first signs of recovery.
Substantial alignment between the growth of mortgage loans and the dynamics of real estate prices in the various euro area countries. If in Ireland an average growth in the value of houses of 14%, in the five-year period 1999-2004, corresponds to an average increase in mortgages of 24%; in Germany, where the real estate market recorded growth close to zero, the average annual increase in mortgages was 4%.

source: Il sole 24 Ore