Italian Home Sales Rebounding After Eight-Year Slump

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As home prices in Italy fall for the seventh year, buyers have stopped waiting for the bottom.

Sales of existing homes will increase 3.7 percent this year, marking the first gain since 2006, researcher Nomisma Institute said in a report in November. Purchases in Rome, Florence, Genoa and Bologna rose more than 10 percent in the third quarter from a year earlier, Italy’s revenue agency said.

Homebuyers are taking advantage of the lowest mortgage costs since 2011 even as the economy contracts and prices continue to fall. An increase in sales may help lenders begin to shore up balance sheets burdened with real estate collateral that’s been losing value.

“If the property market recovers, it will be possible to review the value of collateral of nonperforming loans,” Carlo Messina, chief executive officer of Intesa SanPaolo SpA, Italy’s second-biggest bank, told reporters on Nov. 18. “This will improve the lenders’ relative positions.”

Mortgage rates have lured Italians back to the market. The average rate for new loans fell in September to 3.27 percent, according to data provided from the European Central Bank. That was the lowest level since the first half of 2011, before the country’s longest economic contraction on record began.

Rates have been declining steadily since 2012 and the drop accelerated this year as the effect of lower ECB rates filtered down to the countries. Italy’s average mortgage rate is still 0.3 percentage point higher than the euro-area average.

Price Declines

Home purchases rose 3.6 percent in the third quarter from a year earlier, the revenue agency said on Nov. 20. Sales in Italy’s biggest cities increased an average of 9.6 percent.

The gains come as Italy’s recession enters its fourth year, with unemployment at record highs and youth joblessness of more than 40 percent.

The Organization for Economic Cooperation and Development said in a report this week that it expects Italy’s home values to drop 4 percent in 2014. Prices have fallen 16 percent since 2008, data compiled by Bloomberg show. Fitch Ratings predicted a further decline before the market stabilizes in the next two years.

“While the drop in values was enough to convince some to invest, many others still find it hard to get a mortgage and prices will keep falling,” said Luca Dondi, director general of Bologna-based Nomisma. “The increase in sales may go on, although at a contained pace.”

Mortgage Applications

Nomisma estimates that there will be about 400,000 transactions this year, and Dondi said sales in 2015 will be at least that high. Purchases exceeded 800,000 at the 2006 peak.

The recovery in home buying this year is much weaker than previous rebounds in 1976, 1985 and 1997, Nomisma said in a report this month.

“It’s far too early to say whether such a rise in transactions, which is mainly due to more favorable credit conditions, precedes a full recovery of the real estate market,” said Loredana Federico, a Milan-based economist for UniCredit SpA.

In October, home mortgage applications rose 22.1 percent from a year earlier, the biggest increase since 2009, credit adviser CRIF said in a report. Lending for home purchases climbed 6.2 percent in the first quarter from the same period of 2013, the most recent data available, CRIF said in June.

Bank Burden

“This shows that there is a rising demand for credit,” Nomisma’s Dondi said. “The growth outlook in coming months may be key to make banks more confident and prompt them to ease the financial conditions in order to meet that demand.”

Consumer confidence unexpectedly fell in November to the lowest since February as households remained pessimistic about job growth, statistics agency Istat said in a report today.

A rebound in purchases is poised to help some of Italy’s big banks, which are suffering from bad loans backed by real estate that has lost value over 13 quarters of economic decline.

Following the ECB’s asset quality review, Italian lenders had to raise provisions by 11.8 billion euros, more than any other nation in the euro zone, according to Bloomberg Intelligence. Intesa had to increase the amount it sets aside against loan losses by 88 percentage points after including collateral in the second quarter, the BI analysts said.

“The mortgage market is recovering, the potential growth of transactions is gaining strength,” said Messina of Milan-based Intesa. “We may have to wait until after 2015” for prices to rebound, “but it’s clear that a path is now laid out towards recovery.”

Property Tax

The government could add to the market’s momentum through its property-tax policy. A recurring tax on first homes has been introduced twice and halted twice since 2008 and the prospect of a new levy is creating uncertainty that weighs on property sales, Rome-based Bank of Italy said in its financial stability report on Nov. 13.

“Demand for homes is still very much weakened by the high and ever-changing taxation of main and non-main residences,” said Paolo Righi, head of Italy’s FIAIP real estate federation. “The government could effectively favor a recovery of the market by reducing or at least making the taxation more owner-friendly.”

Less than one-third of the nation’s real estate agents expect conditions in the housing market to improve over the next two years, according to a quarterly survey based on 1,395 interviews, a Nov. 11 report by the Bank of Italy showed.