Eurozone house price growth is cooling markedly in parallel with a slowdown in US housing markets, according to bankers and economists.

The deceleration in the eurozone has gone largely unnoticed, partly because of the lack of up-to-date and comparable statistics in the 12-country region, and is probably not as pronounced as in the US.

But the effects could be felt particularly in countries such as France and Spain, where rapid house price growth has helped fuel economic growth, and may see the European Central Bank raising interest rates less aggressively.

However, central bankers will remain concerned about prices in some eurozone members, for instance in Ireland, where price growth may even have accelerated recently.

Eurozone house prices rose 1.5 per cent in the second quarter of this year on a seasonally adjusted basis and were 7.5 per cent higher than the same quarter a year before, according to calculations by Barclays Capital, the finance house. That compared with growth rates of 1.8 per cent and 8.4 per cent in the first quarter.

France and Spain are showing the clearest signs of a slowdown resulting from increases in ECB interest rates since December and consumer expectations of further rises in borrowing costs. Christian Noyer, governor of the Bank of France, said this month there were "a certain number of signs that the housing market, or at least the growth in housing prices, has slowed, which is a good thing".

François Drouin, chairman of Crédit Foncier, the mortgage bank, told the Financial Times: "The volume of demand has fallen in recent months. In June and July, we saw a drop in demand for new-build houses, and the market for older houses will soon follow suit. This is good; it will calm the market, without a crash."

In Spain, Barclays Capital estimates that seasonally adjusted quarterly figures showed an increase of just 1.3 per cent in the three months to June - the weakest since 2000. BBVA, Spain's second largest bank, said a pick-up in residential construction could further soften price growth and has warned of the risk of a "strong adjustment" of prices and building activity.

Although countries such as Spain still face the risk of a sharp correction in prices, the overall impact on the eurozone economy of the easing of the housing boom is likely to be less marked than in the US. Eurozone-wide growth in house prices has been checked by developments in Germany, where - unlike most of the rest of the world - prices have been stagnant or fallen over the past decade. But Germany's housing market has recently shown signs of life, with house loans picking up, which could help compensate for a slowdown in Spain.

Consumer spending linked at least partly to rapid house price rises has powered French growth. But the association between housing markets and eurozone consumer spending is generally weaker than in the US. Financial products allowing consumers to borrow against the value of their houses are under-developed, and the proportion of incomes saved by eurozone consumers has hardly changed. That reduced the positive impact on growth during the upswing, and will reduce the downside as prices slow.

Source:  Financial Times