Standard & Poor's Chief European Economist Jean-Michel Six recently discussed the housing market slump in a public panel discussion for European investors.

Six revisited fundamentals common to the U.K. and Continental markets and focusing especially on housing affordability.

How low residential housing prices might tumble and how long before recovery kicks in continue to be major concerns in Europe. Six said that the price declines and falling transaction volumes seen in most West European residential real estate markets since 2007 are poised to continue. However, on a country by country basis, the magnitude and timeframe of anticipated drops varies.

"First of all, we need to single out the exception of Germany, which is one of the very few European countries that did not undergo a housing bubble and is consequently bucking the downtrend," Six said. "German housing prices have remained stable and are unlikely to slide significantly in the months to come."

In France and the U.K., according to Six, the tight supply of dwellings will provide some support to prices after 2010, whereas in Spain and Ireland, the overabundance of available housing stands will cause further declines.

"We typically measure fundamentals through key housing ratios, such as price to income and the proportion of transactions involving first-time home buyers," he said. "When European housing markets peaked at the end of 2007, price-to-income, or affordability, ratios showed strong signs of deterioration, hitting all-time highs in terms of the number of years of income needed to buy an average-priced home in most markets.

He added that as a result, new buyers found it very difficult to enter the market. The overall conditions have suffered without new buyers and "the fresh oxygen they bring to markets," Six said.

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