Moody's: Green shoots in Italy's housing market indicate a very gradual recovery

Italy's housing market is in the nascent stages of a recovery, says Moody's Investors Service in a special report published today. Mildly positive macro conditions, low interest rates and low household debt leverage will help stabilise credit trends for securities backed by residential mortgages into 2016.

"Some signs of recovery are emerging, but its pace will be muted: New mortgage applications soared by 42.5% year-on-year. House prices have fallen by 19% since their peak in 2008, but trends suggest that they are slowly stabilising," says Carole Bernard, a Vice President and Senior Analyst at Moody's.

"In the longer term, a slower population increase, muted economic growth and high unemployment will weigh on housing demand. This points to house prices staying relatively stable in 2016, which holds back a more pronounced recovery for the market," she observes.

Moody's says that during the debt build-up in the boom years, the Italian housing market was more restrained than Spain and Ireland. Private house sales were up 6.2% year-on-year in Q2 2015. Lending is also on the rise, and underwriting standards have remained strong, with loan-to-value ratios for new mortgage loans in 2014 averaging 67%. Household debt amounted to 62.6% as of Q4 2014.

The new report: "Green Shoots in Italy's Housing Market Support RMBS Stabilisation in 2016," is available on www.moodys.com.

The rating agency's research shows improved mortgage affordability is driving signs of recovery. Falling house prices post-crisis and low interest rates have translated into improved debt affordability for new buyers. In turn, mortgage applications have risen and the trend in total gross mortgage lending for the sector has improved.

Moody's anticipates a moderate improvement in arrears in 2016. Over the past 12 months, data indicate that Italian residential mortgage-backed securities (RMBS) lagged behind other European countries. Overall, Italian RMBS have exhibited stable to mildly deteriorating performance on average, with a few outliers still showing increasing delinquencies and defaults. In contrast, RMBS countries in other peripheral markets like Spain and Ireland, which deteriorated most in the crisis, showed strong improvement over the same period.