While the decline in housing prices in America has been making news for some time now, less attention has been paid on this side of the Atlantic to the downturn in European housing. The housing market in Europe, much like that of the United States, "soared during the first half of this decade, rising far beyond the levels that you'd expect, based on traditional economic factors."
The fallout from the bubble is beginning to look the same, if not worse. According to Newsweek, over the first six months of 2008, housing prices in several European nations, including the United Kingdom, Spain, Sweden, and Norway, have fallen "at a faster rate than is occurring in the United States." According to one analyst interviewed by Newsweek, the European downturn is still in an "early stage".
Eastern Europe is also seeing major fallout from deflation of the real estate bubble. According to Reuters, nations such as Bulgaria, Romania, and the Baltic republics of Latvia, Estonia, and Lithuania, have seen property prices plummet as easy access to credit has dried up. A Bulgarian property agent interviewed by Reuters reported that "No-one is buying. Everything has frozen". The credit crunch has led to fears of "a wave of bank and currency crises," which might necessitate IMF bailouts of several Eastern European nations. In the past two weeks Hungary and Ukraine have been bailed out, with the IMF providing loans "totaling $32 billion, in exchange for belt-tightening."
A recent report on European housing by Stratfor argues that the housing bubble faced by Europe was larger than that seen in the United States, and in correcting could lead to a "long-term deflationary spiral". The report points out that in addition to facing overheated housing markets, Europe, over the long-term, faces a "poor demographic situation," with a birth rate well below replacement level. According to Stratfor, this situation "will dampen the demand for housing in the long term and possibly create a deflationary spiral in the housing market".
Not all analysts are so gloomy, with some arguing that "the practice of giving mortgages to less credit-worthy buyers," never reached the same levels in Europe, and that while prices did boom, there is not a "vast glut of never-lived-in houses sitting vacant on the market," which should help to mitigate the situation. Regardless of the severity, it appears clear that Europe is set to face a continued period of real estate value contraction.
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