The real estate markets in many West European countries are cooling down. The process has begun prior to the most recent financial crisis on the both sides of the Atlantic due to accumulation of bad mortgage loans. There is, however, no place for panic, as far as the large macro-financial mechanisms are concerned. The situation is quite different from the time of the last serious mortgage crisis in late 1980s and early 1990s. Even not at its historic low, the credit is still quite affordable; with the predominance of long-term periods of repayment, it's actually still taking historically low portion of the average European household.

2007 isn't 1991. At that time, people across Europe (an North America) found themselves trapped in a vicious circle of high interest rates and property prices getting higher and higher. The market correction then was brutal; with mortgage payments reaching two-thirds of some nations' household incomes, it was just a matter of time before the most impressive post-World War II property sell-off took place. 2007 isn't 1991. The market in EU is cooling, and at some places the correction is significant. But there is no place for panic on a continental scale. The current market correction won't be a recurrence of the past dramatic events. The financial system is ready to take the coup. The banks are ready to ease the conditions and provide relief for millions of small borrowers.

The facts speak for themselves. Almost two decades ago the average long-term interest rates have reached double-digits. In some European countries the mortgages took up to two-thirds of the average household incomes. The long-term loans were remarkably mid-term by contemporary standards. The financial systems in some European countries were still considered weak; the dangers that financial bankrupts could spill over the entire systems were significant. Just a brief review of the press at that time shows that governments as well as ordinary people took this danger very seriously.

Back to the future. In 2007 the picture looks very different. The long-term interest rates are less than a half of their record levels of early 1990s. True, they are up from their historic low that have been reached two years ago. They are up, but not by too much. One fact makes this increase less important than it seems, the increase in the length of the loans; the bulk of the long-term loans are now 25-years instead of 15-years. True, the average residential price is much higher than 5-6 years ago, but that is precisely why the market makes some corrections now, and not 5-6 years ago.

Back to the financial system in Europe. In this respect, 2007 doesn't look like 1991 either. In 2007, it's the Eurozone institutions that dominate the game. The stability of the former German financial system covers most of the Western Europe. The main financial policy is conservative, which means guaranteeing the lowest possible interest rates given the inflation, which is also the lowest possible. In 1991, there was no Eurozone, and the European exchange mechanism actually broke down under the combined attacks of the financially irresponsible governments and some groups of financial opportunists. Is it possible to replicate the 1991 story in 2008 or 2009? Theoretically, it's still possible, but the chances are that the events will either not cover many European countries, or that the impact of the depression will be milder, or both at the same time.

Which makes us repeat again the general conclusion that parts of Western Europe are on the verge of real estate market corrections. After years of unprecedented growth in many residential markets, the time has come to make a pause before the residences become again sufficiently affordable for the buyers. The first-buyers' attitudes, which are good precursors for the whether, now are waiting for better times. But there is no place for panic.

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