Anyone who scrolled through the real estate apps installed on their mobile in 2020, at the height of the Covid pandemic, found that housing was more affordable than ever. Nobody bought anything at that moment of maximum uncertainty and prices sank. A year later, that same person could see how the same properties that he had marked on his ‘favorites’ list had become quite expensive. Money was already moving at the rate that the economy was healing its wound. This year has started just as hot, dynamic, with rising prices… but everything can change after the summer.
Warning bells are ringing in a sector facing a “perfect storm” looming on the horizon with various gloomy clouds: one, the inflation that it has eroded the income of families (in Spain more than in the rest of the countries, as calculated last Thursday by the OECD); another, the rise of interest rates that makes mortgages more expensive and scares away buyers (who can opt for paid savings products now that interest rates have risen); and third, the recession that is predicted for the fall – in the United States it has already arrived – and that it would damage the economy, it would damage employment and, as a consequence, it would damage the demand for houses.
“Citizens read newspapers, listen to the radio… and when they are told that there will be a recession, there is always a percentage of them who take it into account because those messages permeate and paralyze their purchase decision,” he explains to 20 minutes Luis Fabra, director of real estate studies at the University of Zaragoza. It is what is colloquially called “the self-fulfilling prophecy”: that the real estate slowdown occurs would not be caused by the real conditions of the market, but by the simple fear of the people that it will occur. That fear would end up producing the prophecy itself.
Sales slowed down in June
The truth is that the first signs of real estate cooling are already taking place. The National Institute of Statistics (INE) showed this Friday a fall of 3.2% in the sale of homes in the month of June compared to the month of May. In that same month of 2020 and 2021, operations had grown by 22.7% and 3.8% respectively.
Industry experts don’t want to talk about market contraction, only moderation in demand and prices. “There will be a change in trend in the real estate sector, Of course, but I don’t think we have to be alarmists because we are starting from a very good situation, the figures prior to the pandemic have been exceeded,” explains Fabra.
The data supports these good roots: sales continue on a positive path (in June they grew by 18.8% compared to the same month of 2021), more houses have been sold up to June than in any other first semester since the times of the real estate bubble (330,997 units) and the rise in prices in July, according to data published this week by Fotocasa, has been the most pronounced in recent months.
But what if the economy cools? “If we go into a recession and GDP goes down, obviously employment will be affected and also the purchase of houses“, advances the expert from the University of Zaragoza.
Whether the break in the housing sector is more or less pronounced, says Fabra, will depend on three things: the damage to economic activity inflicted by the recession, its impact on employment and how rates evolve. “The last rise to 0.5% is small, but the Euribor is already at 1%, so a higher rise is anticipated. If that happens, it would become more expensive for families to finance their home and the demand on these households will be greater because their ability to pay is already being reduced as other products in their basket become more expensive.
Housing is the greatest destination of resources of any household, so getting a mortgage requires having a planned work horizon and a lot of confidence in the future. “If that changes, people can paralyze their purchase decision,” points out a Fabra who contemplates the possibility that the good figures for this year’s operations are due to people and investors who have “anticipated” their purchases precisely in anticipation that an acquisition in the coming months will be more expensive.
“It is true that the demand for housing may begin to decrease and that prices may not continue to grow as much,” says María Matos, Director of Studies and Spokesperson for Fotocasa, who points to three communities that now raise their prices by more than 5 Annual % and that may begin to moderate soon: Madrid, Balearic Islands and Andalusia. In fact, Madrid’s autonomy is already beginning to show signs of real estate fatigue: it is the only one in which sales fell in June: -6.3%, says the INE.
The industry bras
“Despite the worsening of the economic context, the real estate sector shows a marked upward trend,” they oppose from the Caixabank research service. The entity underlines that the health of the sector has two supports: on the one hand, that the supply of housing is now lower due to everything that has been sold in recent months (in this way the predicted drop in demand would not affect prices much ); and on the other, that the supply of new housing is also constrained by the war in Ukraine.
“Construction costs are rising and the supply of materials is aggravating due to global bottlenecks“, they explain from the banking entity. “The economic uncertainty, the difficulties in finding qualified labor and the evolution of prices is negatively affecting the start of new real estate promotions”. Visas for new construction, in fact, could fall this year to 100,000, compared to 108,000 in 2021. Again, less supply, less demand… and consequently some price stability.
The figures handled by Caixabank speak of 550,000 sales this year, almost twenty thousand less than the 566,000 of 2021. The fall would be accentuated next year to 490,000 operations. And the contraction will not only be due to less demand from the Spanish. “Foreign demand may also be impacted by the economic slowdown in the main home buying countries in Spain, which are the United Kingdom, Germany and France,” indicates the study by the bank.
Of course, the sector and the experts rule out any kind of crack in the sector like the one that occurred after the bursting of the real estate bubble of the first decade of the century. “The evolution of the market has been bullish these years, but prices have not grown by 15% per year as at that time,” says Fabra.