CEIC News@lert: Is the Spanish Housing Market Starting to Stabilize?
The Spanish housing market is still struggling to recover from the devastating contraction it has experienced since the outburst of the global financial crisis. Since 2009 house prices have steadily been decreasing and their vastly reduced levels are both a symptom of, and a major contributor to the economic turmoil in Spain. In the second quarter of 2013 house prices fell by 7.6% compared to the same quarter of the previous year, a marginal improvement from the 10% decline observed at the end of 2012. The average price per square meter sank to EUR 1,482 compared to EUR 1,519 in the first quarter of 2013, a decline of 2.5%. The slower pace of contraction by the mid-point of this year has attracted analysts’ attentions and sparked a wider discussion concerning whether the housing market in Spain is on the cusp of recovering. The consensus on the topic is that there is still a huge stock of unsold dwellings and given the lack of demand caused by the overall economic contraction, the revival of the housing market is still a long way off. Investigating the housing market from the perspective of households provides us with an insight into the trend of the demand side of the market. The affordability ratio, which measures the average dwelling price to gross average household income, has steadily declined in recent years. In the second quarter of 2013 the ratio dropped to 5.7, suggesting that the relative purchasing power of households in terms of dwellings has improved. However, financing under the special housing schemes provided by the government, including tax deductions and subsidized housing, is steadily declining as well due to the worsening of the economic climate. A surge in foreign investment in property can also be observed in the second quarter of 2013. The 12 month cumulative value of investments amounted to EUR 5.95 bn, increasing by 25.7% compared to the same quarter of the previous year. The increased international investors’ appetite in the real estate market is driven by low prices and the willingness of domestic banks and real estate companies to sell their assets and diversify their portfolios. Domestic investment in real estate, on the other hand, is rather fragile, though it does not constitute as large a share as the international capital inflows. The index of domestic investment with a base year of 2008 dropped to 51.6 by June 2013. The most recent developments in the housing sector in Spain can be seen from the housing credit growth to households and the interest rate trend on that borrowing. Both indicators seem to show relative stabilization in recent months after the free fall experienced during the previous year. Interest rates for house purchases settled at 3.27% per annum in August 2013, while the pace of decline in credits to households slowed down to -4.2% on a year-on-year basis. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog