Monday, February 23 2004

Below trend economic growth in some parts of Europe is being blamed for a slowdown in house prices in some countries, says the Royal Institute of Chartered Surveyors (RICS).

The countries worst affected by the economic downturn since 2001 have tended to experience the worst performing house markets, according to a study commissioned by the Institute. Evidence suggests that these countries have near static house prices, or even ones that have fallen slightly in real terms.

It says five countries are prominent in this category: Austria, Denmark, Germany, the Netherlands and Switzerland. The study also points out that the slowdown even managed to reduce the house price boom in Ireland, though the market there bounced back strongly in 2003.

By contrast, RICS found that teh UK and Mediterranean countries such as Spain and France experienced a double digit increase in house price inflation. Madrid and the Mediterranean provinces within Spain, and France saw price rises of 20% or more, and percentage changes in British, Irish and French house prices were in the teens, researchers found.

The report also comments on the debate about whether a soft landing or housing market bust is in the offing, saying: ‘It is difficult to come to the appropriate conclusion for housing because there is no clear knowledge of what the equilibrium or fundamental value of housing should be. If it was possible to produce such estimates, and they were widely accepted, fluctuations in house prices would be much less.’