housing sector in Spain facing the challenge of the bubble

The housing sector in Spain, facing the challenge of not repeating the mistakes of the bubble

The real estate market in Spain continues to rise strongly but mistakes learned after the bursting of the bubble dispel the fear of a new “ladrillazo” in our country.

The Spanish real estate sector seems to be normalized, although consultants, appraisers and realtors warn that this improvement does not imply a full recovery, while dispeling the fear of a possible new real estate bubble.

These experts point out that, although in recent months the market has experienced double-digit increases, the numbers from which they are based were very low as a result of the crisis; and recall that the housing market is influenced by the seasonal and large ups and downs in short periods of time (what it is known as “saw-tooth”).

In this regard, the Spanish Institute of Statistics (INE) has published its quarterly survey of House Price Index (IPV). In the first quarter of 2016 homes raised an average of 6.3%, when in the same period last year the average was 4.5%.

On the other hand, the annual growth in home sales in Spain during the second quarter of 2016 has reached the 3.9%.  So, amid fears of a new bubble’s revival, experts are noticing that this is unlikely to happen again due to two factors:

The first is that wages are still low and youth unemployment is still high, so that access to a first home is being slowed; just the opposite at the time of the housing bubble.

The second factor is financing, as both, banks and buyers, are being very cautious when purchasing new homes. In addition, the number of households paid cash is higher that the number of hired mortgages. The greater or lesser differences between these two variables marks the boundary between a healthy market and a housing bubble.

Before the brick crisis, the opposite was true, there were more mortgages contracted than number of households paid cash because of strong property speculation. However, these differences have been cut down during the crisis: in 2014 there were 94,072 homes more paid cash than those purchased by hiring a mortgage, and 44.8% of sales were made without financing.

It is expected that the improved economic situation put the Spanish property market back on sound footing, although it would be of no use, if the experience of the housing bubble does not serve to correct the practices used by both banks and buyers and which generalized speculation and killed an economic sector from which so many citizens depended.

At Del Canto Chambers we have an in-deep knowledge of the Spanish housing market. Please do not hesitate to contact us at clerk@delcantochambers.com

Del Canto Chambers’ Editorial Board.

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