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Standard and Poors
European Economic and Monetary Union
Property Investment Performance
European housing markets could finally see a sustained recovery in 2013 according to a new study by ratings agency Standard and Poor's. In the report, aptly titled "The Eurozone Crisis May Loosen Its Grip On The Housing Market" the firm asserts that the macroeconomic situation will continue to improve into 2013 and as unemployment continues to fall consumer demand for housing will rise, and with it residential values.
"In our view, the U.K., Germany, and France remain the largest and most attractive developed housing markets, while Russia is the most prominent emerging market," said Standard & Poor's credit analyst Anna Overton.
The latest data from the ECB shows mortgage lending still declining across Europe as of Q4 2011. In fact the 29% drop in lending in Q4 was sizeably faster than the 18% drop seen in the previous quarter. However, S&P also point out that house values have held up well in both the UK and France, and that the volatility in house prices over the last 5 years is a reflection of their high house price to income ratios, while Germany's comparative price stability reflects its low house price to income ratio.
"We maintain a stable outlook for rated homebuilders in Europe," added Ms Overton. "That's because they are currently well capitalized to withstand mid-term risks relating to consumer confidence and the availability of consumer credit. We take this into account in our rating methodology, as well as the risk that working capital can become volatile over long operating cycles.
"However, we believe that companies in this sector are likely to become active in tapping the debt capital markets, as bank lending across Europe declines. This should in our view help smooth out the volatility in working capital."
Overton went on to say that while S&P is still predicting a double dip recession across Europe this year, that they are coming to believe it will only be a mild one, with rising consumer demand in emerging markets and resilient demand in established markets supporting a gradual return to growth. "Our baseline forecast is for flat growth in the European Economic and Monetary Union (EMU or Eurozone) as a whole, with 0.5% growth in France, 0.6% in Germany, and 0.5% in the U.K," she said.
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