With house prices falling across all European markets by the end of 2008 and prospects for 2009 even gloomier, the revival of European housing relies now on the ability of European governments to cope with the mortgage credit shortage and on the scale and duration of the economic recession, says the RICS European Housing Review 2009, published at the beginning or March.

Significant reductions in mortgage lending, due to the credit crunch, coupled with the global economic downturn, have depressed demand for residential property in Europe.

Last year house prices declined or remained static across all European markets without exception. However, the Baltic States experienced the sharpest falls (Estonia fell 23 percent), followed closely by the UK (-16 percent), Ireland (-9 percent) and Scandinavian countries (Norway dropped 8 percent).

Even those economies that did not experience a boom in house prices have not been spared from the squeeze in the property market. In Germany and Austria, a lack of credit has hit demand and further moderate falls in house prices and activity are expected in 2009. Meanwhile in Italy, sales declined and, for the first time in more than a decade, mortgage growth was negative in 2008.

Spain surprisingly recorded only moderate price falls through the year, although it is predicted the dramatic effects of the credit crunch on mortgage availability and the ending of a consumer boom are likely to lead to a more material readjustment of prices in 2009. In addition, the worsening global economic climate will lead to a further deterioration in the Spanish second homes sector.

In Central and Eastern Europe, the financial turmoil hit residential markets very hard; In Hungary transactions fell by 10-15 percent in 2008 and house prices declined in all major Polish cities during 2008. Continued constraints on mortgage availability and the rising cost of foreign currency loans may lead to further falls.

In France, transactions of existing homes fell by 30 percent in 2008 and prices are expected to continue to slide in 2009 as a result of the weak economy.

The nationalisation of some of the major mortgage lenders in the Netherlands and Belgium, such as Fortis bank, has had a significant impact in those countries' housing markets, which could lead to a further weakening of prices.

 The report's author, Professor Michael Ball, said: “The world financial crisis and economic downswing have hit European housing markets badly.

“Given the broader context in which these housing market downturns are taking place, there is greater synchronisation of housing market decline in Europe than has been seen in the past and there are going to be some tough times before marked recovery occurs.”

Simon Rubinsohn, chief economist of RICS, commented: “The tightening in lending criteria by banks over the past year is now having a meaningful impact on a number of European housing markets. In addition, sentiment is clearly being affected by the worsening economic climate.

“As a result, activity levels will continue to weaken through much of 2009 and prices look set to fall further in most markets. Ensuring a ready flow of mortgage finance needs to be an important priority for European governments but the key to providing support for property markets across the region is effective measures to underpin the economy.”

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