Diapositiva 1

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The Italian housing market in the crisis Fresh
evidence
Francesco Zollino
OECD STESEG Meeting Paris 10-11 September 2009
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Outline

• 1. Importance of investing in information on the
  housing market
• 2. The statistical outlook in Italy
• 3. The Bank of Italy-Tecnoborsa new survey
• 4. The new BoI price indicator
• 5. More on price developments in Italy

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1. The need for a better monitoring the housing
market

• Developments in residential property prices are
  crucial in economic analysis
• changes in house prices affect the business
  cycle through their impact on
• (a) households wealth and in turn on
  consumption behaviour
• (b) residential investments
• 2) sharp price fluctuations impact on financial
  stability (credit quality, value of
  collateral...)
• 3) the functioning of the housing market affects
  labour mobility
• Empirical analysis shows that housing market
  might contribute to the persistent propagation of
  shocks that hit the economy
• The recent crisis confirms the importance of
  investing in reliable, complete and (possibly)
  harmonized statistics on the housing market.
• Information available in Italy (as well as in the
  euro area) is lacking.
• This presentation focuses on a recent initiative
  undertaken in Italy to enhance a timely
  monitoring of the housing market a) new
  survey on market operators
• b) new price indicator

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2. The statistical outlook in Italy

• In Italy information on the housing market is
• released by many (private and public)
  institutions/research centres
• not systematic, not timely, not available for a
  few important dimensions
• a) Price statistics
• Official (NSI) data on property transaction
  prices are not available yet.
• Alternative sources (all pro and cons)
• Nomisma no breakdown in the series but limited
  geographical coverage
• Il Consulente immobiliare (CI) long time series
  (1965) and broad territorial reach, but frequent
  changes in the reference sample (breakdown).
• Osservatorio del mercato immobiliare (OMI). Broad
  territorial coverage, but lack of historical
  depth (since 2002) and data published with a
  delay of a few months.

All in all (Bank of Italy statistics) CI is the
source that is best suited to analyzing
medium-term developments. It is used in BI
(Zollino, Muzzicato and Sabbatini, 2008) to
compute an index since mid-1960s OMI is
important for the wealth of information provided
and territorial coverage. It is used in BI
(Cannari and Faiella, 2007) for estimating
households wealth.
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2. The statistical outlook in Italy /2

• (b) Non-price information
• Statistics on building permits are released, but
  only at an annual frequency and with a delay of
  1.5 years
• Information on transactions is available (OMI),
  but with 3-4 months delay. Furthermore, data are
  semi-annual (quarterly data only on an
  experimental basis)
• Information regarding how long it takes to sell
  a dwelling, the percentage of discount on the
  initial price and so on is not collected
  systematically.
• (c) Qualitative (high-frequency) surveys
• ISAE monthly surveys. (1) Question on the
  households intention to buy a dwelling (poor
  leading properties of the answers) (2) business
  climate of building firms
• New initiative to fill the gap for the
  residential market
• Early 2009 Bank of Italy and Tecnoborsa launched
  a new quarterly survey to collect (timely)
  information on the residential housing market.

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a) Quarterly survey (since January 2009) that
gathers opinions of real-estate agencies on the
residential market through a questionnaire
(short, simple, structured). b) Survey
outsourced to an external company (Questlab Srl)
c) The data are collected in the month following
the end of the calendar quarter (Jan, Apr, July,
Oct) the reference population consists of
real-estate agenciesd) The sampling design is
stratified, with a total of 34 strata
representative of 4 national macro-areas
(North-West North-East Centre South and
Islands).
3. New BoI-Tecnoborsa survey general
characteristics
Purpose
Collect qualitative data useful to fill the
informative gap for a set of variables, such as
prices, transactions and time for selling, on
which quantitative statistics are either
available with a considerable lag or missing at
all
Main characteristics
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3. New BoI-Tecnoborsa survey The methodology
a) Collection of the data

• Initial contact by email questionnaire filled
  in through the web (most used) or sent by fax
• A leading Confederation of real-estate agents
  (FIAIP) provided the main list of agencies to
  extract the sample strong cooperation to
  contact the agents (information, etc.)

b) Sample design (34 strata) and reference
population

• 15 Italian towns with population of 250,000 or
  more
• 15 areas around the towns at letter (a) forming
  the hinterland
• 4 national macro-areas (North-West, North-East,
  centre, South and Island) excluding the 30 strata
  above.
• Note each stratum contains a minimum of units
  then, the sample size is large enough to ensure
  that s.e. are acceptable the basic of units
  per stratum is proportional to the number of
  transactions recorded in 2006.
• The reference population consistes of real-estate
  agencies (source Istat)
• Each real-estate agency in the sample is assigned
  a weight giern by the number of firms in the
  stratum cell to number of firms in the sample

c) Contacts/response rate
Around 3,500 agencies are reached target 1,500
actual participants around 1,000 (still
relatively low response rate)
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(a) of months to sell a dwelling (b)
unexecuted mandate to sell and new mandate(c)
main reasons not to renew a mandate (e)
percentage of sales financed by mortgages and
their incidence on transaction prices
New BoI-Tecnoborsa survey The questionnaire
In the first quarter of 2009 evidence of a slump
in the housing market
Section 1. The outlook for transactions
Table 1
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(a) Price developments in the reference
quarter (b) Transaction price vis-à-vis
offer price
3. New BoI-Tecnoborsa survey The questionnaire /2
Section 2. Prices
Table 2
Background issues how to ask for prices in
quantitative terms?
y/y vs. q/q percentage changes?
Intervals or number? Only quantitative,
qualitative, both? Actual price vs. perceptions
(answer tend to fall in classes 0, 5, 10, ...)
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(a) Prices (next quarter) (b) Number of
mandates to sell (next quarter) (c) General
outlook of the residential market in the local
market (next quarter) and the national market
(next quarter and next 2 years)
Section 3. Short-term perspectives
Table 3
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Open issuesDifficulty in increasing the
response rate (real estate agencies not used to
answer questionnaire). The process of
interviewing agencies takes too long (just less
than 1 month)How to collect quantitative
information? (prices and transaction) To be
assessed informative content of the answers,
considering that the survey was launched in
exceptional timesFuture developmentsAd hoc
section to investigate specific issues
Confidence indicator (a few more observations
are needed)
3. New BoI-Tecnoborsa survey Open issues and
future developments
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4. The new BoI indicator of house prices
The new indicator combines three components that
differ by
type of dwelling, geographical coverage and time
horizon
1) prices of new houses in the provincial
capitals (from 1966 S1) 2) prices of
new and recently-built houses in the provincial
capitals (from 1985 S1)
3) prices of new houses in 1400 other
municipalities (from 1998 S1)
Each component is calculated at provincial,
regional, macro-regional and national level (also
divided in urban and non urban areas)
As in overlapping periods, the three categories
of prices differ more in terms of levels than in
dynamics (with trend discrepancies temporarily
widening in 2003-05)
i) for years since 1998 we calculate a composite
indicator based on prices recorded in all
municipalities (or some 60 of total national
stock in dwellings)
ii) for earlier periods, data are based on price
changes in provincial capitals, for new and
recently-built dwellings back to 1985 and for the
sole new ones back to 1966
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The new BoI indicator of house prices /2


Prior to crisis, developments of new indicator
are much in line with those published by other
research centres (controlling for geographical
cover and type of dwelling).
new house prices in 13 regional capitals
between indicators based on Consulente
Immobiliare and OMI
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Based on BoI indicator of house prices, analysis
of medium term developments points at four cycles
in the Italian housing markets - The first
cycle, presumably already under way when data
collection began in 1965, closed with the peak
reached at the end of 1974, when prices surged by
more than 30 per cent after five years of broad
stability (Figure)- The second cycle, from the
end of 1974 to mid-1981, was characterized by a
phase of volatility that was more accentuated
around the second oil shock, interrupted by an
abrupt rise in prices, that reached a new peak in
1981(Figure) - The third cycle, lasting up to
the second half of 1992, began with a gradual
downward correction, with prices down in 1986 to
the low of the previous cycle, followed by more
than 8 per cent per year increase in real terms
until the peak in 1992 (Figure) - In the
fourth cycle, likely just closed by the end of
2008, after a seven year fall at a milder pace
than in the past, house prices show a brisk
upswing (5 per year in real terms) until
firstsigns of a slowdown since the end of 2006
(Figure)
5. More on house prices developments in Italy
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Recent developments point to a gradual fading of
house inflation in Italy, by a diverging
intensity across different sources as transaction
volume shrank in latest periods - According to
OMI, house prices in real terms stabilized in the
first semester of 2008, and show a slight decline
in the second (Figure)- According to BoI
indicator, barely in line with OMI in previous
years, house prices were still on the raise in
the first semester, with a virtual stagnation in
the second, signalling that uncertainty usually
surrounding property price increased as the
volume recession deepened. In the first semester
2009 prices still keep increasing at a moderate
pace. - Latest figures point to number of
transactions keeping plummeting in the first
quarter of 2009, totalling an overall drop by 36
since the middle of 2006. (Figure)
5. More on house prices developments in Italy /2
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Based on historical evidence that volume cycles
are more timely reactive than prices to changes
in fundamentals on housing market, property
prices should soften further in the next future.
- However, the contracting volume of sales is
likely resulting in a larger margin of error in
measuring prices, as it is suggested by the
widening gap between different price indicators.
- The qualitative assessment of real-estate
agents, according to the Bank of Italy-Tecnoborsa
survey, is that the fall in prices had probably
begun at the end of the last year (Figure)-
That points at a possible reconciliation between
BoI and Territory Agency (OMI) price indicators,
as the latter heavily hinges on real estate
assessments to validate official records whereas
they are poorly reliable on a local basis due to
unsatisfactory number of transactions. BoI
indicator, as based on raw data from il
Consulente Immobiliare, reports only on prices
affective paid on the market.
5. More on house prices developments in Italy /3
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Table 1 (per cent of real-estate agencies
reference quarter JanuaryMarch 2009)
Main reasons for cancelling contract with agent
Lack of offers due to too-high asking prices
main reason for contract cancellation, followed
by offers dismissed as too low by sellers and
buyers difficulty obtaining a
mortgage Selling times stable at around 7
months Approximately 70 of purchases financed
with mortgages (stable) Ratio of mortgage to
house price 71
Property selling times
House purchases and mortgages (per cent
reference quarter JanuaryMarch 2009)
Back
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Table 2
(per cent of real-estate agencies reference
quarter JanuaryMarch 2009)
Property selling prices
Evidence of more frequent reductions in prices
(balance 59.9 compared to -54.8)... ...also
with respect to the sellers asking price
(average reduction increase) Prices 11.8 below
the sellers asking price (compared with
9.5) Sign that prices might gradually decrease
in the next months.
Difference between selling price and sellers
first asking price (1)
Back
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Table 3
(per cent of real-estate agencies reference
quarter JanuaryMarch 2009)
Outlook for the housing market
General situation of the housing market in Italy
Estate agents are becoming lest pessimistic about
the short-term outlook for the housing market,
both locally and nationally. Their medium-term
expectations for the market at national level
show some improvement on the previous survey.
Back
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House prices in Italy(index 2000100 constant
values based on HICP)
Source elaborations based on data from Bank of
Italy, Istat and Il Consulente immobiliare
back
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House prices and transactions in
Italy(semi-annual data percentage changes at
constant prices)
Source elaborations based on data from Bank of
Italy and Territorial Agency () For
transactions, 2009-S1 estimate based on 2009-Q1.
back
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Italy - Real estate agency assessments of price
developments
back
Source Bank of Italy and Tecnoborsa Survey