A Housing Bubble In Europe?
Thursday, September 21, 2006 at 04:22AM 
That seems to be the grand question at the moment looking at the European housing market. Before I turn to my main impetus for this small pointer I will begin with a referral to a recent article in The Economist which takes a quick view at the global housing market ... a good read to set the scene; the US housing market is turning and Europe's is still looking perky but for how long?
'America's housing market has certainly caught a chill. According to the Office of Federal Housing Enterprise Oversight ( OFHEO ), the average price of a house rose by only 1.2% in the second quarter, the smallest gain since 1999. The past year has seen the sharpest slowdown in the rate of growth since the series started in 1975. Even so, average prices are still up by 10.1% on a year ago. This is much stronger than the series published by the National Association of Realtors ( NAR ), which showed a rise of only 0.9% in the year to July.
(...)
Elsewhere, our global house-price indicators signal a cheerier story. House-price inflation is faster than a year ago in roughly half of the 20 countries we track (see table). Apart from America, only Spain, Hong Kong and South Africa have seen big slowdowns. In ten of the countries, prices are rising at double-digit rates, compared with only seven countries last year. European housing markets—notably Denmark, Belgium, Ireland, France and Sweden—now dominate the top of the league. Anecdotal evidence suggests that even the German market is starting to wake up after more than a decade of flat or falling prices, but this has yet to show up the index that we use, which is published with a long lag (there are no figures for 2006).'
Now all this is widely covered in a recent post by Brad Setser (and as it is Charles Gottlieb) in which he uses the frothy housing market to argue (once again) that Europe is set and ready to take over from the US in driving global demand forwards. He and I do not agree here but all the same his post is good read; the graphs are interesting as well.
The bottom line provided by Charles Gottlieb ...
'Overall housing prices have arguably strongly revived the European consumer’s wealth perception, and strengthened their confidence. Internal demand revamped European growth which was revised upwards by the bureaucracy in Brussels: Euro Area growth is to be the best since 2000, achieving 2.5% yoy.
The bottom line: Europe has taken the housing relay baton from the US, but in this race, the baton is perhaps better described as a bubble.'
I know that Morgan Stanley also believes in this idea of Europe taking over from the US (Hat tip New Economist) but I am just not convinced and an upbeat housing market does not help to turn me around (see my post linked above as to why and here). However, I am watching Brad I really am so keep all those ('good') news coming and you might end up convincing me.
Reader Comments (2)
I'm glad someone is finally posting on European housing. There's so much to be read on the US housing bubble, and so little at this side of the pond. In Spain we have been expecting a bust for 4 years now, and nothing happened yet, so some of us feel like we're preaching in the desert or something :-/.
Congratulations for your blog too, you offer really high quality blogging, with lots of high quality links. I was just amazed to read you are only 21-y-o!
Thanks for the nice words and comments. I guess you are right to argue that not much have been said about a 'collective' European housing bubble and that this is indeed something to watch. Particularly in the context of Spain which after all is a big country the asset boom has had a real impact on growth rates in Europe (more specifically also in the Eurozone). I know that also Denmark (where I come from) is experiencing a boom partly on the back of an asset boom in the housing market.
In terms of the US housing market I think that people have been talking so much about this because of the link between the US housing market - domestic demand - the US imports - and ... global economic growth. Many of the recent recession calls on the US economy start, quite naturally, at the slowing housing market.
Spain is definitely going to experience a bust at some point but it all the depends on the ECB's rate policy and currently it is goint up because of a structural situation of excess liquidity and the much allured 'vigilance against inflation.' However, I am not sure this can continue given the situation in other of the Eurozone countries, or at least the ECB faces a serious policy trade off here.So in the end Spain's situation is different because it is tied up to the Eurozone economy.