According to the conclusions contained in the January Multi-Country Report published by the International Monetary Fund (IMF), housing prices appear to have bottomed out in Denmark, Ireland, the Netherlands and Spain. The report noted that “the metrics suggest that housing prices in Spain, Ireland, Denmark and the Netherlands have come to or may be near their lowest point”.
The report, which looks at the condition of the real estate market in these countries, where housing has undergone a significant devaluation in recent years, highlights that the four countries included in the analysis all share a similar institutional environment (a common monetary policy and the EU’s institutional framework). The IMF stressed that the price collapse has been more pronounced in Spain and Ireland, and at the same time reiterated that these two countries also suffered higher rates of unemployment, brought about by the strong decline in the construction sector. They said that “Ireland and Spain were hit harder because, having built more during the boom years, the price decline has been accompanied by a rise in unemployment and a halt in construction activity”.
The international institution indicated that actual housing prices point to stabilisation in the Netherlands, and that slight increases have even been registered in Denmark and Ireland. However, they pointed out that the house price cycle has left all four countries with significant gaps in output and elevated levels of private sector debt and that there is still some “uncertainty” and certain “risks” that could alter the path of recovery, such as a rise in interest rates, which currently remain unusually low.
The decline in housing prices has also affected consumption. Household debt increased due to the real estate boom (these countries recorded strong price increases during the period from 2000 to 2007, driven by very accessible financing conditions) and, during the crisis, families’ real estate assets have been reduced, according to the IMF report. Residential and non-residential investment have also been affected, while the financial institutions have implemented stricter conditions for gaining access to finance.
According to the Fund, these four countries are now facing the double challenge of reviving the sector and combating the effects of the crisis, and in order to do so, in addition to measures already undertaken to facilitate the recovery process, they should introduce further reforms such as calling for more monetary and fiscal policies, promoting the rental market, tax and pension reforms to combat the lack of liquidity, and adopting policies that facilitate more efficient restructuring of debts, amongst other things.