Real Estate

A new publication was launched this week by Eurobank EFG’s new Division of Research & Forecasting. The publication is entitled:  “Economy and Markets” and aims to provide a thorough analysis of current issues and developments in the Greek and international economy, as well as in the domestic/foreign markets and business sectors.

The first issue is entitled: “Is the real estate market overvalued? International trends and investment opportunities”.  It is co-authored by Dr. Manolis Davradakis and Prof. Gikas Hardouvelis,  Eurobank’s Chief Economist and Director of Research.   It contains an analysis of the current Greek real estate market together with a critical synopsis of the views expressed by a set of 10 experts from central banks, universities, mutual funds and real estate companies in Europe and the US.  These views were aired in a conference organized by Eurobank EFG on January 20 in Athens.  

The publication also contains a summary of some of the results of a survey conducted under the auspices of Eurobank EFG in the months of December and January on 1400 households in large Greek urban areas. According to the survey, Greeks intend to accelerate the purchase of houses in the future.  They expect further increases in housing prices and consider dwellings as a secure long-run investment. Still though, the majority is not planning to sell their dwelling, indicating a small elasticity to changes in housing prices, which acts in a stabilizing fashion.

The authors stress that the relation between prices and rents has stabilized in the Greek real estate market since 2002 (Diagram 5).   Moreover, over the last two years, rent payments increased while the amount spent on mortgage interest payments declined (Diagram 8).  The rate of increase in rentals was higher than the rate of increase in housing prices (Diagram 9).

According to the authors, the so-called real estate market “bubble” concerns mainly some foreign countries, not Greece. In the article, they present new evidence on the relation between the real estate market with the overall economic activity in the United States, the United Kingdom and Spain. The existing positive relationship between real estate prices and the business cycle was severed in the above countries during the recessionary period 2000-2002 (Diagrams 2, 3, 4), as real estate prices kept going up despite the recession. The present overvaluation worries stem mainly form that past anomaly.