Saving for a home: mortgageversus rental.
Buying a home is one of the criticaldecisions in the life of a family and must be planned with care. Especially in the current real estate market situation with falling prices and difficulties in obtaining mortgages. Which are the best optionsfor maximising our savings without impacting too much on the family budget?
Elena Molignoni, Coordinator of the Real Estate Observatory of Nomisma, is speaking.

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By Elena Molignoni, Coordinator of the Real Estate Observatory 

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In only two years, the share of brokered housing transactions supported by mortgages has dropped from 66% in 2011 to 47% in 2013

Household choices regarding the purchase of a home are mainly conditioned by the economic possibilities related to future expectations of income and employment, as well as the difficulties in accessing credit. Concerning the latter factor, despite the fact that the purchasing power of demand has risen+ in recent years--due to a reduction in property values that was greater than the erosion of average income--the real accessibility of the market was undermined by the progressive reduction of credit support.

In only two years, the share of brokered housing transactions supported by mortgages has dropped from 66,3% in 2011 to 47,5% in 2013, as did the loan to value rate, reaching an average of 60%, confirming the fact that real estate investment today still remains contingent on household possibilities for self-financing.

The analysis shows that the determining factor in the collapse of transaction activities was not so much a conscious choice of the demand to defer purchases, pending a cyclical improvement, as was the decision of the credit system to radically review its willingness to accept bets on future earning capacities. The transition from pro-cyclical excesses to an exasperating selectivity has ended up having devastating consequences for the real estate sector.

With the revision of the credit policies implemented by some institutions toward the end of the first half of 2013, an element of substantial change with respect to the recent past has been introduced which can ease the selective approach to the potential demand and, consequently, guarantee a minimum boost to the market. The abandonment of the closure strategy, only apparently self-protective, seems to be the only effective safeguard that is available to the banking system to facilitate a process of disposal that would be otherwise almost impossible to achieve. The continual expansion, still ongoing, of the group of non-performing loans is, in this context, an element of further complexity and, at the same time, a stimulus for immediate action.

On the other hand, it is evident that the previous repricing, made necessary by economic conditions and by the vigourous surveillance activities of the Bank of Italy, in any case imposed caution on financing choices, given that the protective capacity of real estate guarantees was everything other than automatic or indiscriminate, as in the past one was erroneously led to believe. With an outlook of slow and gradual restoration of allocation normality on the part of the banks, prospects for overcoming the most critical phase of the real estate sector have emerged.

In the light of this, it is clearly inappropriate and misleading to refer exclusively to the element of trust and, more generally, to the revival of demand as a factor in market recovery.

Despite the certain appearance of reassuring signals, the precariousness of the context requires caution and does not allow expressions of unconditional optimism to be made.



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