The house once again makes the Spanish sleepless. It concerns those who want to buy, sell, invest or rent. Not surprisingly, the debate over whether or not home prices are going to drop has returned to the streets briskly.
A first snapshot makes it clear that the coronavirus pandemic has not tiptoed through this sector, which is facing a drop in sales, prices – also for rent, where the bubble punctures – and construction activity.
The shakeup will continue in 2021, although this time it will be by no means the worst-off industry. The effects of this crisis are not being as explosive as those of the Great Recession.
“The adjustment will be less intense and lasting,” says Félix Lores, an economist at BBVA Research, who recalls that the price is still far from the maximum levels of 2008 and that the effort to access a home is also much lower (at the end of 2019 required around 30% of household income).
“Neither do banks tend to give loans and mortgages to the same extent, which was the origin of the bubble,” adds Juan Carlos Amaro, professor in the Department of Economics, Accounting and Finance at Esade.
And before the start of the pandemic, there were no clear signs of oversizing in the real estate market, acknowledges the Bank of Spain in the Fall Financial Stability Report.
In addition, government assistance to households to combat the impact of covid-19 “has prevented further deterioration,” says Lores. It refers to measures such as ERTEs, mortgage moratoriums, rental assistance or the suspension of evictions for vulnerable families. The problem is what will happen when the aid ends.
That the wound is covered does not mean that it does not bleed. Despite the arrival of the vaccine, there are tough months ahead: the Spanish economy is at the tail of the OECD recovery.
At the end of the day, “the purchase of a house is closely linked to the purchasing power and the possibility of borrowing from families, and, therefore, to job creation and the health of companies,” recalls Amaro. The INE puts face to this reflection: the sale of housing was reduced in October13.3% year-on-year.
Bankinter estimated in its October report a reduction of 35% in 2020, up to 326,000 operations, returning to the minimum levels of 2012 and 2014 – although now it expects that the drop may be somewhat less. In 2021 he expects a 30% rebound, although without reaching pre-virus levels. Until 2022 the 500,000 operations a year will not return.
More complications. The rating agency Moody’s has warned that, despite the price drop, access to housing will be more difficult next year, especially for the young and low-income population. Without forgetting that many families already have serious problems to face the mortgage each month.
The OCU speaks of unaffordable mortgage debt for vulnerable households, advising them to negotiate with the bank or “put the house up for sale as soon as possible. Otherwise they are exposed to the bank keeping the house and the auction price is not enough to cover the debt ”.
But it is that other families will not be able to return the payments deferred by the mortgage moratorium. In fact, the Bank of Spain is concerned about this extreme: the rise in non-performing loans after the end of the moratoriums.
“The situation in the real estate sector could be different if the crisis finally has a strong impact on the financial sector, if a large part of the mortgage defaults and ICO loans end up becoming defaults”, believes José García Montalvo, professor of Economics at Pompeu Fabra University.
In the midst of these lights and shadows, many eyes are on the real estate sector right now. Some pray that prices fall; others to stay. Buyers and sellers never rowed in the same direction.
House prices fell in the second quarter of the year. It was the first year-on-year decrease (-1.7%) since 2015, according to the Ministry of Transport, Mobility and Urban Agenda. The truth is that it had already been deflating since 2019: “The pandemic has accelerated the slowdown that, on the other hand, was necessary,” says García Montalvo.
We come to November and the star markets: in capitals and large Spanish cities the price of houses (new and used) fell by 3.4% compared to the same month the previous year (3% since March, when the pandemic broke out ), the largest decrease in annual rate since 2015, according to Tinsa. ”
Housing prices have grown well above wages (practically unchanged in real terms) in recent expansionary cycles and their correction in situations such as the current one is logical,” argues Rafael Gil, director of the Appraiser’s Research Service .
Venturing to say how much the houses are going to get cheaper in 2020 and 2021 causes in the experts consulted the same sensation as climbing the 8,840 meters of Everest without a harness. The uncertainty is, they admit, capital. “Making this type of forecast is like looking at a crystal ball”, says the professor at Pompeu Fabra. Just look at data asynchrony.
BBVA Research offers the most optimistic estimate: the price will fall by 1.5% this year on average and the falls will lessen throughout 2021. The deterioration in the labor market, household income and the weakness of confidence explain the price contraction. His bet:
“A recovery is possible towards the second half of the year.” The agency Moody’s speaks of a reduction of 2%. On the other hand, Bankinter has reduced optimism: the covid will not have an accumulated impact of 6% as expected, but higher than 9%, which will be distributed between 2020 and 2021.
Contrary to what happened in the last cycle, the price cut it could be more pronounced in prime areas of large cities, exceeding the 10% accumulated drop between the two years, says Juan Moreno, an analyst at the bank.
On the same shore is the Fich agency, which estimates a 10% drop in two years and believes that the housing market in Spain will be, along with the United Kingdom, much more affected by the crisis than the rest of Europe and even the world. See the start of recovery in 2022.
The Savings Banks Foundation (Funcas) has also reconsidered its estimates: it points to a reduction of 8% between the end of this yearand the first half of 2021, with recovery coming thereafter. But it is the economics professor at the University of Barcelona Gonzalo Bernardos who paints the darkest picture.
“In 2020 the price drop will be 12%, and between 4% and 6% in 2021. Thus, from March 2020 to December 2021 the drop will be between 16% and 18%. And in 2022 the recovery will begin ”. Bernardos focuses the disaster on areas dependent on tourism and investment, such as Madrid, Barcelona and the islands.
And he attributes his forecast to the contraction of demand. “In the second quarter of the year, the family savings rate has gone to 31.1% and that is called fear,” he points out.
What is unanimous is that the price contraction will be uneven in Spain. “A smaller adjustment in the price of the new house is expected because its offer will be more limited,” says Félix Lores. Second-hand housing has to dance with the ugliest in this crisis.
Already in September, the General Council of Notaries registered a decrease in the price of used houses of 9.4% year-on-year. In October, the decrease was 3.3%. The news of the arrival of vaccines in early November has changed the expectations of sellers, reluctant to large price cuts.
This is affecting the closure of operations: the purchase of second-hand housing fell 15.2% year-on-year in October, according to the INE.
The owners “have relied on the conjunctural crisis and in the hope of a speedy recovery to keep their expectations intact,” say Idealista sources. In Fotocasa they believe that the price of used will not fall excessively, because it is 37% below the boom years , although they recognize that it is a time to look for opportunities.
According to their latest study, seven out of ten real estate professionals foresee price drops in the next six months; 39% affirm that the reception of contact requests has decreased a lot and 28% that it has fallen slightly.
Because 2021 is tightening, especially if the public aid that artificially supports many households ends. “The seller who cannot continue to draw on savings will have more urgency and will have no choice but to lower the price”, bets the Bankinter analyst. It is a good clue for anyone wondering when to sell and when to buy.
Several experts, such as Gonzalo Bernardos, advise to sell now so as not to have to apply more discounts and buy throughout 2021. “In the first quarter of the year there will be more offers,” he says convinced.
In any case, “given the enormous uncertainty regarding fundamental variables, including prices, purchasing decisions should be based on personal or family circumstances,” reflects Gil.
New housing is a different thing, where prices seem to resist, for the moment, the onslaught of the crisis, except in very specific areas. This is so because the statistics that emerge now correspond to private contracts signed two years ago.
And, although the price of the used one is usually a leading indicator of what will happen to the new one, the large developers insist over and over again that there will be no discounts, at least significant.
“It must be taken into account that 100,000 homes are being produced a year and there is enough demand to cover this figure,” defends Daniel Cuervo, general secretary of the APCEspaña employers’ association.
“Sales for the third quarter are above those for the same period in 2019,” says José Ignacio Morales, CEO of Vía Célere. “I don’t think there will be a drop in sales compared to 2019; I don’t see crying or gnashing of teeth ”, insists Ricardo Martí-Fluxá, president of the Association of Real Estate Consultants (ACI).
Although his speeches contrast with the 5% drop in sales recorded by the INE in October and with the experience of some promoter that has been selling a 16-story building for three months. You have only placed one and accept counter offers.
Mirage, dammed claim of confinement? The sector says no and justifies it. The manager of Vía Célere attributes this unexpected good rhythm of the big companies in the sector to two things. On the one hand, the change in buyer preferences,now looking for terraces, balconies, common areas and more square meters.
In this, the new construction and the peripheries, previously penalized, win. “Having quality and good common spaces has been placed at the level of importance of the location”, believes Consuelo Villanueva, director of Institutions and Large Accounts of the Appraisal Society.
“Promotions with the latest homes for sale, in some cases penthouses and ground floors with gardens and those larger, have been favored by the search for more space by customers,” says Cuervo. Thus, despite weaker demand, there are those who buy. Who?
“Those who least fear losing their job or have financial capacity are those who tend to dare to buy a home,” says the BBVA expert.
The other mainstay of new home sales, in Morales’ opinion, is “the migration from financial money to real estate money; housing is once again considered a safe haven for savings ”, he says.
In fact, “when the recovery begins, part of the accumulated savings of families, now at maximum, will go to consumer goods and to buy housing as an investment, to be put up for rent”, believes Raymond Torres, director of Situation and International Analysis of Funcas. This “will put a stop to the fall in prices”, agrees García Montalvo.
Promoters say they have a high level of pre-sales that makes them not in a hurry to make discounts. “By 2021, almost 70% of the residential housing product is sold,” says Daniel Cuervo. However, these houses began to be marketed off plan before the covid, with prices prior to it.
At present, “new promotions are not being launched due to the level of uncertainty in sales rates and demand,” says Consuelo Villanueva. “The developer needs 30% of pre-sales to obtain financing and is not preventing,” warns Juan Moreno, from Bankinter, who anticipates that banks are being more selective and restrictive when financing works.
The pandemic is also being noticed in construction activity. The number of visas to start homes has dropped by 30% until September and this will affect the construction of 2021 and 2022. “In 2021 we could see a reduction in production around 70,000 homes, which means falling back to 2016 levels” , they argue in Colliers International.
This reduction in supply, especially in stressed areas, is what leads developers to affirm that prices “will not undergo large downward variations,” Daniel Cuervo returns.
Although it depends, because in the market for second homes on the coast it is possible to speak without half measures of disaster, especially due to the disappearance of foreign demand, which in some markets had a weight of more than 30%. Between January and June, purchases by foreigners fell 38.4%, according to Mitma. The price drop will be more intense here.
However, several experts believe that this is something temporary and that the coast and the sale of second homes “could experience a marked initial rebound, spurred by the lower prices experienced,” according to Rafael Gil.
“It will be even more attractive than before the pandemic and not only as a second home for foreigners, but as a place to telecommute,” believes Villanueva.