Eurozone demand for house loans has dropped sharply, supporting the European Central Bank’s view that property markets are cooling – so far in an orderly manner.
Demand for housing loans to households “fell significantly” in the first three months of this year, the ECB reported in its latest bank lending survey for the 13-country region. It said that the decline was driven mainly “by a sharp deterioration in the assessment of housing market prospects”.
The survey showed a much larger number of banks reporting declining demand for house loans than reported increases, and that the difference was the largest since the survey began in 2003.
Eurozone housing markets have varied considerably in recent years, with countries such as Spain, Ireland and France seeing rapid growth while German prices have remained flat or even fallen. The ECB’s survey results fit with anecdotal and other data pointing to a general slowdown in house price growth in those countries that have seen the fastest increases.
However, the latest ECB survey showed banks had become more optimistic about the outlook, expecting net demand for loans to improve slightly in the second quarter of this year.
Seven increases of a quarter percentage point in the ECB’s main interest rate since December 2005 have contributed to the slowdown. But so far, the eurozone has avoided any sharp correction that might have damaging economic consequences, although worries remain about the vulnerability of the Spanish market in particular.
Last week, John Hurley, Ireland’s central bank governor, said the available evidence pointed to a “soft landing in the Irish property market”. He forecast that Irish house prices would grow by at a rate in “low single figures” this year, after reaching 15 per cent last year.
For the eurozone as a whole, Jean-Claude Trichet, ECB president, pointed to a gradual slowdown in the growth of actual lending to households for house purchases, which fell to an annual rate of 8.9 per cent in March, from more than 10 per cent at the end of last year. This represented “a certain cooling down,” he said.
The ECB is expected to raise its main interest rate by another quarter percentage point, to 4 per cent, in June, and economists have generally pencilled in another such increase by the end of the year.