A report published by Funcas sees the probability that pace of the housing market will slow down due to the s economy and not to the prick or burst of a bubble.
The latest issue of Economic Information Notebooks analyzes the real estate sector and related financing, in a context of economic slowdown, recalling that the real estate bubble and financial risk through credit became the main factor in the crisis.
Thus, the article by Carlos Ocaña Pérez de Tudela and Raymond Torres indicates that the imbalances that led to the previous crisis are not observed, so that, after several years of recovery, a limited adjustment can occur, caused largely by the moderation of the demand.
Both the prices and the volume of real estate transactions would moderate in the coming years, without falling significantly, except in those urban centres where there had been an overvaluation.
As a reference, if the historical elasticity of the price of the house with respect to the GDP were maintained, the price of the house would rise 2.5% in 2020 and 0% in 2021. This tendency would not have great repercussion neither on the economy nor on the bank balances.
For the authors, the situation is not comparable to that of 10 years ago because prices are almost 20% lower than the maximum pre-crisis; As for the average appraisal value, the differential reaches 33%; The effort of households to repay mortgages and pay interest is close to 33% of disposable income, well below 2008, when it exceeded 50%; and there is no mortgage credit bubble.
Nor does the weight of the real estate sector in the economy warn of situations of overvaluation or risk of default. Investment in construction, which exceeded 20% of GDP, has fallen by half. And employment in the sector has gone from 11.8% of total employment to 6.3%, a value close to the European average. Construction activity contracted slightly, but from reduced levels - in 2018 the sector produced 41% less than in 2008.
Today, the largest price increases occur in 10 provinces: the large capitals, including Barcelona, Madrid and Seville, the provinces that have benefited most from the tourism boom, such as Castellón, Mallorca, Málaga, Tenerife and Valencia, as well as Navarra and Valladolid. On the contrary, 10 provinces (compared to none during the bubble) still register price drops and many others do not experience significant changes.
The article does warn of the inflation in the rent, with an increase in the demand for the tightening of the norm of access to the mortgage credit and the change in the behaviour of groups like young people and occupied in search of mobility.
Santiago Carbó, Pedro Cuadros and Francisco Rodríguez agree to rule out the factors that generated the last financial crisis: credit and real estate risks. If the moderation defines the situation of the real estate market in Spain, in the credit segment we can talk about stagnation, they explain.
The slowdown in the Spanish economy is milder than in the rest of the Eurozone and there is no exacerbated growth in financing for homes and businesses and housing prices.
Quite the contrary, credit is stagnant, with few positive variations in specific segments (SMEs, consumption), and both the weight of construction in the economy and real estate prices follow a moderate upward trend. Among the efforts that reduce financial risks, the reduction of household and business debt stands out, with a drop of more than 72 GDP points since 2010.
Posted on November 26th, 2019