CASE: PRICE AND VOLUME TRENDS IN ITALY AND IN EUROPE
Compared to the sales, which in recent years have recorded a positive trend, house prices are struggling to regain ground. The preliminary estimates published by Istat last July indicated, in the first quarter of 2018, a decrease in the house price index (Ipab) purchased by households, both for residential purposes and for investment, by 0.1% compared to the quarter previous year and 0.4% against the same period in 2017. But which elements influence the trend in property values? This is explained by Federico Polidoro, director of the Integrated System Service on Istat's economic conditions and consumer prices.
As underlined by the "Residential Real Estate Report 2018", realized by the Real Estate Market Observatory of the Revenue Agency (OMI), in collaboration with the Italian Banking Association (Abi), if during 2017 the number of trades in the residential sector it grew by 4.9% compared to 2016, while on the price front the decline continued (-1.1%) starting from 2012, the year in which the values started to fall significantly. Focusing, in particular, on the last three years, the recovery of the residential market in terms of volumes is evident and at the same time the persistence of the decline (albeit slightly lower) of prices, with the exception of 2016 when they recorded a growth of just 0.3%.
How can we explain the detachment that has been recorded in the last few years between sales and prices?
"The decline in volumes began before 2012, when prices also began to fall. Values have been slow to move and fall, however they have not halved as well as volumes.
In 2013 - with less than 400 thousand homes sold and sold - the lowest point was reached in terms of sales, less than half of the peak reached in 2006, when more than 850 thousand homes were sold and sold. On the price front there has not been a halving, but certainly starting from 2012 the values have started to fall even significantly in our country, suffering - in some way - the dynamics of demand. Overall, however, it is clear that in addition to the relationship between supply and demand there are also other factors to be taken into consideration.
Taking an example and examining the London case, we can see that it is a market where, in addition to sustained demand, thanks to income and economic conditions of some families, there is also a concentration of capital that can influence the trend in property prices. Although London has experienced signs of a slowdown in recent times, the UK has hardly known any crisis in the real estate market over the last few years. In the first quarter of 2018, the United Kingdom continued to travel at + 4.4%, while Italy stood at -0.4%. This is to underline the multiplicity of factors that influence the real estate market.
"In general, price trends, even for consumption, are influenced by exogenous factors that do not depend on the trend in demand and supply. Also with regard to specific housing prices, there are certainly other factors that determine the dynamics and that do not only affect the relationship between supply and demand, which certainly has its influence ".
When we talk about the trend in house prices, is it therefore more fundamental than ever to analyze the context in which we move?
"We are going out of an economic crisis that, at the international level, in its first wave, started from the real estate market with the subprime mortgage crisis, which has seen many families no longer able to cope with loans for the purchase of housing , generating a crisis in the credit system that was then transmitted to the real economy. In some countries there has been a real bubble in the sector. Spain, now in strong recovery, suffered a very drastic drop in prices for a long time due mainly to the strong unsold stock.
When examining the factors that influence the trend of house prices it is therefore necessary to identify a combination of specific elements: demand, investment, excessive development of new buildings. All this in a situation that has seen Italy experience a very important economic crisis, where the general demand of families has experienced a phase of contraction, where the population is aging and recourse has been made to saving in order to face the economic crisis in the more difficult years, inevitably shifting resources that could be invested in assets like the home ".
To date, how could we close the year?
"As far as 2018 is concerned, the first quarter did not start at best, marking values at -0.4%, with a clearer divergence between new and existing homes, with prices for new homes increased by 1.3% on an annual basis (trend values), while existing homes recorded a -0.8%.
At the European level, Italy is a bit 'lagging behind in terms of price changes. And the first quarter of this year confirms this. In all EU countries, in fact, house prices have increased: Germany (+ 5.3%), Great Britain (+ 4.4%), France (+ 3.4%), Spain which is in strong recovery (+ 6.2%). Countries in which they did not grow or fell slightly saw Italy (-0.4%), Sweden (-0.4%) and Finland (-0.1%).
In the current state of affairs, if prices remain stable over the next three quarters, the most reasonable prospect is that the variation is around zero.
Overall, the growth in volumes is confirming, but at a slower pace than those recorded in 2016, when the sales were also driven by tax incentives. Therefore, considering the stickiness of the prices with respect to the volumes bought and sold, a significant change in values does not appear to be foreseeable ".
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