The real estate market
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Real Estate Watch
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3. The real estate market
Moderation across the board in the real estate markets
At a global level, since the middle of 2005, signs of moderation have been observed in the most dynamic real estate markets, such as the US, France and Ireland. This slowdown is associated with the tightening-up of monetary policy that is taking place in the main economic regions and which has started to be gradually passed through to property prices, although they are still increasing at high rates in historical terms.
The cooling of housing demand which was observed throughout 2005 and in the early months of 2006 in the US, as a result of the change in the bias of the FED's monetary policy and the deterioration in affordability ratios, is leading to a slowdown in the residential market in terms of activity, transactions and rates of real estate appreciation. In this respect, in the first quarter of 2006, residential investment in the US increased by 5.8%, almost a point and a half below the 2005 average, housing transactions were down by nearly 5% and prices rose at a rate of 8.4%, nearly two points below the average rate observed in 2005. As a result of the more sluggish demand, the periods for selling housing have grown longer: by just over two months in the case of new housing, which takes 6.3 months to sell, and by just over a month in the case of existing houses.
In 2005 in the EMU, housing prices continued to rise at similar rates to in 2004, although the breakdown and nature of this rise have changed. The increases in prices in different EMU countries have been drawing closer to each other since the second half of 2005, because of the slowdown that is occurring in the most dynamic markets such as France, Spain and Ireland, and the acceleration in the least active markets, such as Germany, The Netherlands and Portugal, although relatively uneven behaviour continues to be observed in the Union's different markets. According to the figures available, this tendency towards standardization seems to have been confirmed in the first half of this year.
In the United Kingdom, where the market was early to slow, as described in the last issue, a small increase in the growth of housing prices has been observed in 2006, after they fell slightly in real terms in the last quarter of 2005.
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In Spain, "renewed dynamism" in the sector...
In Spain, some real estate market indicators showed an upturn in the early part of 2006: the number of transactions increased and the price rises were above their trend. Thus, the slowdown in the number of housing transactions observed in 2005 came to a halt in the first quarter of the year and the growth rate was higher than in previous quarters. The good performance of the economy in general and of employment in particular worked in favour of the number of houses sold in the first quarter of the year in Spain. However, the increase in the number of transactions registered was observed in the new housing segment, which may sometimes reflect past decisions, while sales of existing houses continue to register much more moderate growth rates. This increase in sales was also seen in the number of houses appraised: in the first quarter it rose by 8% to 231,000 houses.
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