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Tuesday, September 15, 2015 11:15:07 AM
Recovery in residential property prices would have positive impact
By Todd Buell
A paper published by the European Central Bank signaled that the housing market is improving in the eurozone, a development could have a positive impact on the domestic economy in the 19-country bloc.
“Recent developments in euro area residential property prices suggest that the corner has been turned and a recovery is under way,” said the study published Tuesday.
It said that a similar rebound was seen in 2009-2010 but that this couldn’t be sustained in the face of the eurozone debt crisis. The article flags differences between then and now. One key difference is that the current recovery in housing prices “seems less contingent on prices in metropolitan areas.”
The article also concludes that for now at least financial stability concerns are limited. “The ongoing upturn in euro area house prices appears to be sustainable.” The price rise also hasn’t “so far been accompanied by a significant increase in euroarea real household loans.” The lack of “rapid credit growth” limits financial stability risks from the rise in house prices, said the report.
Such a development would be positive because some eurozone economies, notably Spain and Ireland, saw their economies badly shaken by the bursting of housing bubbles in recent years.
“The recovery in euro area house prices appears to be relatively broad-based across groups of countries,” said the report. “With contributions to euro area house price growth from Germany and Austria remaining solidly positive, the upturn in the annual growth rate since early 2013 essentially reflects a gradual easing of the negative contributions from the countries most affected by the financial crisis,” said the report.
A stronger housing market has the potential to boost consumer confidence and spending.
“A prolonged period of rising house prices, or the expectation that there will be one, could be perceived by households as a permanent increase in wealth, which, in turn, could lead to stronger consumption via a propensity to save less or borrow more, and thereby to higher economic growth,” said the paper.
If things really played out this way, this would be good news for European policy makers, as a stronger domestic economy could complement the bloc’s export sector, which is currently benefiting from a weaker euro. A stronger domestic economy would also potentially cushion any setbacks that Europe’s export sector might feel from a slowdown in emerging markets.
A stronger economy could also help push up inflation in the currency bloc, which currently at only 0.2% in annual terms is far off the ECB’s medium-term target of just below 2%.
http://www.wsj.com/articles/ecb-says-eurozone-housing-prices-have-turned-corner-1442310407
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