The European Central Bank announced a negative interest rate policy on Thursday. It may not have been enough for the stimulus-addiction crowd, but this is truly an experiment. If the banks actually have to pay money to keep their capital tied up overnight, maybe they will be forced into more lending and risk taking. And this is just on the heels of potentially good news for the housing prices in the European periphery countries.

Fitch Ratings has signaled this week that housing prices in the hardest hit peripheral Eurozone mortgage markets are starting to recover. The recovery is far from even, but it is certainly a start if it can be sustained. Fitch gave a synopsis of each nation in the periphery with some comments on each.

The Irish market is now past its trough. Fitch sees single-digit increases in property prices in Ireland, after the largest fall in Europe, of nearly 50% from the peak in 2007. Irish house prices increased by over 6% last year.

The Portuguese market has stabilized, but remains fragile and the Spanish market is likely to reach its low point around the start of 2015. The stabilization in Portuguese property prices in 2013 may be premature, and was based on a low number of transactions. Continued bank deleveraging in Portugal is also restricting access to credit and therefore limiting demand. This could trigger a further drop in home prices by up to 10%.
The Italian and Greek markets, which fell because of problems in the wider economy rather than a housing boom, are still falling but their economies are starting to recover and housing markets are likely to follow. The price correction in Italy has started to slow, and Fitch sees home prices falling by up to 7% more before stabilizing.

The economies of Italy, Portugal and Greece have started to improve. Fitch is calling for very slight GDP growth in all three countries in 2014 and 2015, but the housing markets remain weak. Fitch expects that there will be further price corrections in these markets before the markets stabilize.

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Limited mortgage lending and heightened financial pressure on home buyers continues to put pressure on Greek house prices. Fitch expects that Greece’s average housing prices will fall another 11% before stabilizing – with a peak-to-trough decline of 45%.

The Spanish economy was shown to be growing with unemployment falling. Fitch thinks this will help housing prices long-term. Still, there is a large overhang of properties and demand remains constrained due to pesky issues such as high unemployment, high credit costs, and reduced real incomes. Mortgage volume is down 80% from 2007 levels in Spain.

Fitch’s call is far from great news. Unfortunately, you can’t really expect a serious snap back after this last recession. Again, the European Central Bank’s negative rate policy was not just targeting growth initiatives. They were trying to thwart deflation.

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