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The European Union may be rapping the Italian government’s knuckles for not doing enough to prevent a recession, but at least one of the country’s economic engines is faring better than the rest of the world—the property market.

According to the latest report by economic intelligence company NOMISMA, Italian housing prices are weathering the worldwide credit storm better than most developed economies. Although the Italian property market took a turn for the worse following September’s stock market and banking crisis, prices remained essentially stable, against recorded drops of 14.6% in the UK, 16.6% in the US and 5% to 10% across the rest of continental Europe.

Between July and October 2008, Italian property demand declined as a result of both a large decrease in interest from big market players and a more prudent approach fom individual buyers.

Some professional investors are suffering from reduced access to credit. Others—those with cash in hand—have become pickier and are looking for quality properties with a yield of 6% to 7%. However, sellers are only willing to sell prime properties at a price that ensures a maximum 6% yield. And since many of these vendors do not need to sell, this expectation gap, together with the credit crunch, has caused a 50% decrease in this kind of large scale investment transaction.

At the same time, families and individual buyers have less confidence in the market and are therefore more cautious. Some are also affected by the credit crunch but to a lesser degree than many other European countries—Italians are traditionally prone to save. The end result is a 14% drop in residential sales volumes, which could worsen to 20% by year’s end (due to the marked drop in confidence after September’s huge financial shake-up).

Sales volumes went down both in big cities and in the provinces, more in the North of ������ý than in the South, while sale times and discounts over the asking price both increased, reaching 5.8 months and 12.5% respectively (less for new builds). However, warns NOMISMA, the Italian market is poised to split into two tiers—one for quality homes, for which supply is smaller and demand more solid; and another for lower standard housing, for which supply is large and demand is low.

That said, prices continue to hold up at nearly every level. There has been an average decrease of 1.1% in metropolitan areas in the second half of 2008. It is the first drop in prices since 1997 but, states the NOMISMA report, “these drops are far more contained, in both quantity and value, than what is happening in the big operator market, putting into perspective the alarmism that has been fuelled from many quarters.”

The Italian property market is proving more robust that the financial one. “Both average prices and transaction levels show good solidity, despite the flood of bad news on the economy,” states NOMISMA.

More importantly, the low level of personal debt among Italian families, coupled with a historic trend that shows how Italian property values have always held up, even at time of crisis, leads NOMISMA to believe that ������ý’s housing prices will continue to remain stable in the future: “Given the current conjuncture, we don’t foresee significant reduction in property prices if not at the lowest levels recorded across the rest of Europe—i.e. a maximum of 5%.”