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FIGCovered Bonds

Housing Market

EUROWEEK: Does the evolution of the housing market or employment trends in any parts of Europe give cause for concern?

Cortazar, BBVA AM: The rate of unemployment is correlated with house prices and I believe, as far as Spain is concerned, that we have reached the high point in unemployment. We have already seen some falls but it will be a long, slow road to implement the necessary reform and to get the structural rate of unemployment down. I would also like to see more effort made to channel credit to Spanish SMEs which have the best potential to create jobs. But the main focus right now is on stabilising the financial system. When our banks are well capitalised, credit should start flowing to Spanish small to medium sized companies again, but the process will take time.

Heberlein, Fitch: Spain is where we have the highest expectation in terms of a peak to trough decline in house prices. In nominal terms we expect to see a 40% decline from the peak in Q1 2008 and we don’t expect it to reach he bottom until the end of 2014. In the Netherlands we expect a peak to trough decline of 25% but they’ve already fallen by 18%.

We also follow government housing policies as governments will naturally try to avoid the social unrest linked to massive default and house repossession. They can impose restrictions on eviction for vulnerable borrowers. For instance in Spain there’s been some temporary measures announced and we have extended the recovery timing for defaulted mortgage loans from 36 months to 45.

Eichert, CA-CIB: The Dutch market is one of the worst-performing housing markets in core Europe but that hasn’t effected spreads one bit. They’ve actually tightened as prices have fallen. And all the nervousness about Nordic markets hasn’t had an effect. So I would say there’s been absolutely no impact in the core space.

Even if you look at the Spanish sector you would need to have a pretty drastic scenario to cause losses. The bigger risk you run is being extended rather than actually being hit with principal losses. s

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