In an article for the Spanish daily El Mundo, university professor and real estate expert Gonzalo Bernardos explains why Spanish house prices appear to be rising.
Pointing out that the spanish housing market is growing again after years of declines, with prices up 4% and sales up 14% over 12 months to the end of the second quarter, Bernardos explains the factors pushing up house prices, whilst assuring us that we are nowhere near another housing bubble, as all the key market variables like sales, prices, housing starts, and housing affordability are still a long way from the levels reached in 2006 and 2007.
1) Homes are relatively cheap. In real terms (after inflation) the majority of spanish homes now cost half what they did in 2007, and are roughly back to what they were worth in 2002, before the boom got going. Bernardos says spanish property is now a “magnificent opportunity”, which will probably appreciate in price. He forecasts that spanish house prices will rise by 12% in 2016.
2) The willingness of banks to lend more mortgages. Banks today are awash with liquidity and struggling to earn good margins on lending. They have to make up for thin margins with higher lending volumes. Mortgages loans are less risky than other types of credit, and help lock in clients to cross sell other financial products. That explains why new mortgage lending rose 28.5% in July.
3) Housing is the best investment. That’s what many risk-averse investors now think, looking at the miserly returns on deposits, losses on fixed-income funds, and volatile equity markets. In middle and up market city districts, says Bernardos, housing offers a mix of high expected capital gains (up to 50% in what remains of this decade), and rental yields of around 3.5% today, better than savings accounts.
4) Switching from renting to buying. Many households sat out the crisis in rented accommodation, waiting for house prices to bottom out, mortgages to get cheaper, and the economy to pick up, argues Bernardos. Now that those conditions are all coming true, Spanish families are jumping back into the market, unleashing pent up demand.
“A new stage of the housing market has definitely begun,” concludes Bernardos. “In this stage very cheap homes (in municipalities in the middle of nowhere) will continue to exist , whilst others will become very expensive (in the best areas of the big cities). However, nothing will be the same as the boom and bust of recent years.”
Gonzalo Bernarods is an economics professor and Director of the Real Estate Master programme at the University of Barcelona.
Adaptation and translation of an article published by El Mundo. Spanish Property Insight adapts and translates selected articles from the local press for the benefit of non-Spanish speakers.
This translation is based on the following article (in Spanish): ¿Por qué sube el precio de la vivienda?