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Home Sales in Spain Will Grow By 15% This Year With Rates Of Up To 1%

Despite Spain being one of the few countries to experience a slight contraction in housing market activity in 2020, activity in this market returned with vigor in 2021 thanks to improved confidence, a strong labor market, measures to protect household incomes, accumulated savings, changing household preferences, ultra-low interest rates and the juicy returns offered by the real estate market in a negative rate environment.



The real estate market in Spain has enjoyed a mini-boom in recent months driven by a number of factors whose combination has unleashed demand for housing, both new and second-hand. However, in the short term this combination of factors could be in jeopardy (at least those on the demand side). One of the most direct impacts on this good market performance is the announced interest rate hike that is expected to take place at the end of the year.

However, there is still a chance that “2022 will be a fantastic year for the real estate sector.” This is what Gonzalo Bernardos, professor of Economics at the University of Barcelona and director of the Master’s Degree in Real Estate Consultancy, Management, and Promotion at the University of Barcelona, assures us, who specifies that if “rates only rise to 0.75% or 1%, in the best of scenarios – if the war is short and the EU continues to buy gas and oil from Russia – prices will rise by around 10% and transactions will increase by 15%”.

This would mean reaching around 750,000 transactions, “which would leave us very close to the historical maximum of 950,000 units sold reached in 2006”, explains Bernardos, who clarifies that for the moment there is no risk of a bubble in the sector and, once again, rates will have a lot to do with this. Thus, the expert expects that “in 2023 at least we will have an interest rate of 2%, and 3% the following year, which should cushion and prevent the bubble from occurring”.

In the increases expected for this year, new housing will once again be ahead of second-hand housing. Bernardos forecasts that this year a maximum of 145,000 units will be built, which is an “insufficient” supply for the existing volume of demand. “It is foreseeable that new housing will rise again more than second-hand housing, depending on the evolution of inflation and interest rates.”

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Financing becomes more difficult

The upward trend of Euribor is going to worsen financing conditions. “Since the eurozone central bank changed its stance a few months ago and was in favor of starting to raise the price of money, the Euribor began an upward climb, despite the fact that this indicator is currently still negative (-0.237%), it has recovered quite a bit of ground since its historic low in January 2021 (-0.505%). In fact, it has entered positive territory on a daily rate, something not seen since 2016. A fact that continuing over time, would cause a rise in the cost of variable-rate mortgages, making fixed-rate loans more attractive as a safer option,” explains Ernesto Campos Campillo, a university professor in Finance, Accounting, and Taxation of the MBA of VIU- International University of Valencia.

According to the expert, this increase in the cost of financing “will make it more difficult for young people to buy a home, and this is an additional factor, together with geographical mobility and job insecurity, which will increase the search for rented housing”.

Although it is true that, “from the investors’ point of view, the current inflation considerably reduces the returns obtained from rentals, we cannot forget that real estate investments continue to be an important refuge value in the face of inflationary economic scenarios, since in the long term the revaluation obtained in the price of real estate almost always exceeds the increase in the general price index”, explains Campos. Besides the fact that there is no other comparable investment that offers adequate profitability, with a reduced level of risk, and even less that has the existing tax incentives in the IRPF. Thus, the expert concludes that “the impact of the rise in interest rates may initially cause a reduction in sales and purchases and then be passed on to prices, until the market adapts to the new situation”.

Impact of the war on the housing market

Despite Spain being one of the few countries to experience a slight contraction in housing market activity in 2020, activity in this market returned with vigor in 2021 thanks to improved confidence, a strong labor market, measures to protect household incomes, accumulated savings, changing household preferences, ultra-low interest rates and the juicy returns offered by the real estate market in a negative rate environment. “This momentum in the housing market was set to continue this year, but the invasion of Ukraine and inflation have changed the outlook,” warned investment bank Natixis in a sector report dedicated to Spanish real estate.

“The outbreak of war in Ukraine has clouded the GDP growth outlook for Spain. Household purchasing power will be eroded by rapidly rising inflation and, as a result, real household incomes will experience a 4% fall this year, although employment should recover somewhat more. Moreover, mortgage affordability will worsen as the ECB gradually tightens policy to prevent high inflation expectations from taking hold,” say the French bank’s experts.

Miguel Ángel Bernal, economist and financial planning expert (Bernal & San Bujanda), agrees and adds that dark clouds have begun to appear on the buyers’ side. This expert cites high inflation (which reduces purchasing power), the uncertainty generated by the conflict in Ukraine, the current rise in interest rates, the cooling of job creation, and the ever-present problems of young people in acquiring a home as the obstacles that buyers must overcome.

Experts say that the sector has great strengths and is an active safe haven

José María Raya, director of the Housing and Future Chair at Pompeu Fabra University, explains that “the loss of purchasing power (and therefore, the decrease in savings) affects the demand for new homes (new or used housing), which may fall. Although at the moment the accumulated savings in pandemic makes us foresee that this will not be the case in the short term, so the effects will depend on how structural it is and how long this price increase lasts”.

Housing will have to deal with this new, much less favorable environment, but which in principle should not derail the main trend, which is strong and also has tailwinds. There will be changes in demand (decline in home purchases as a consumer good in favor of a rise as an investment good) and some moderation, but neither the war nor inflation nor interest rates should be strong enough to trigger a market correction.

“The outbreak of the war in Ukraine has come at a time when the real estate market is showing a clear uptrend, with very strong demand and a notable increase in prices…. The war conflict could slow down the pace of sales and purchases a little more than our previous scenario already envisaged. However, we continue to expect high sales figures, similar to those of 2019,” explained Judith Montoriol, lead economist at CaixaBank Research.

The Euribor has moved from -0.50 points to positive

Leopoldo Torralba, Economist, deputy chief economist at Arcano, told elEconomista that “the bulk of the storm is until the third quarter of 2022, after which inflation will tend to slow down, as will material costs. But there are many mitigants and transience in the situation, so we see that, although in the short term, the situation of the sector will be weak due to the great uncertainty in key variables, however from the third quarter of 2022 the situation will improve and from 2023 onwards, the environment will be reasonably positive for home purchases.” Despite this, the experts are optimistic despite the fact that families are facing a historic loss of purchasing power and the recent rise in the Euribor, which could continue if prices do not start to fall.

In just over three months the Euribor has gone from -0.50 points to positive for the first time since 2016 on expectations of rate hikes in the Eurozone by the ECB. Rate hikes have traditionally been singled out as one of the major risks to current housing valuations, but economists consulted by elEconomista still see more strengths than weaknesses.


(Featured image by Kara Eads via Unsplash)

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Andrew Ross is a features writer whose stories are centered on emerging economies and fast-growing companies. His articles often look at trade policies and practices, geopolitics, mining and commodities, as well as the exciting world of technology. He also covers industries that have piqued the interest of the stock market, such as cryptocurrency and cannabis. He is a certified gadget enthusiast.