U.S. Real Estate Market Changes Impact Europe

I have several client prospects looking to move to the area and buy Boulder real estate and what I’m hearing from my European contacts is that the national real estate slow-down and the mortgage crisis is now affecting real estate business in Europe.

A recent WSJ article says:

Home prices in some of Europe’s hottest markets are falling after a decade of double-digit-percentage increases. The reasons resemble those across the Atlantic: higher interest rates, faltering confidence and tighter lending standards.

In fact, I have clients in the U.K. who have been selling a home for several months. They’ve had more than one offer under contract only to fail to close due to problems securing the loan for the buyers. The feedback seems to be that the recent mortgage shake-up in the U.S. is now causing markets in some European cities to become more cautious with their own lending practices.

“A year ago it was all, ‘no problem,’ but now they’re making us jump through hoops,” said Iciar Caro, a 29-year-old school psychologist in Spain who can’t find a bank to give her a mortgage on a €236,000 ($337,000) house in a northern suburb of Madrid.

Like in the U.S. in some regions, an expanding construction industry fueled growth and Europe has seen similar growth and expansion but recently the European continent is seeing that ease. Construction is slowing in Spain and some people have said that higher mortgage payments are cutting into their discretionary spending habits.

Former Fed Chairman Alan Greenspan is among many that insist that a period of sustained low interest rates and low inflation world-wide since the early ’90’s, around the time of the Soviet Union’s collapse, encouraged a rush into housing globally.

While that might not sound like a bad thing, low interest rates were certainly a strong stimulant in Spain, which experienced one of the largest housing booms in Europe. The European Central Bank, carefully watching the slowly expanding, big economies on the Continent, kept interest rates low for much of the first part of the decade — often lower than the rate of inflation in Spain. That encouraged Spaniards to borrow money.

The bad news for my U.K. friends is that the ECB had already been raising rates to cool things down in the second and third quarters of 2007, and it was having spme effect. Now we see the addition of a credit crunch on top of it. This may not only restrict buyers’ access to funding but may also slow the housing market more severely as well.

In Ireland — where economic growth, an influx of immigrants and low interest rates helped quadruple house prices over the last decade — the boom also may be ending. Falling house prices will push construction of new units down to 60,000 in 2008 from last year’s record 88,219, according to a recent study commissioned by Ireland’s environment ministry according to the Wall Street Journal.

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