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Citigroup Predicts More Drops in Home Prices

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Spanish housing prices could fall as much as 10 per cent this year, despite talk of recovery in many markets, Citigroup reports.

The banking conglomerate specifically dispelled any suggestion that the sector would recover “in the near future,” although the research report did point to signs of an approaching bottom and the oft-mentioned “stablisation”.

While this may seem like a dire warning, considering the recent groundswell of positivity in the market, Citigroup’s forecast is generally in line with the predictions of other economists. While price drops have slowed, the declines have been continuing in most regions and no has suggested they are going to grind to a halt in the next few weeks. Any predictions for the near future must also consider the possibility of thousands of discounted homes owned by banks flooding the market and dampening any sparks of price growth.

Citigroup actually forecast declines of somewhere between 5 and 10 per cent for the year, with 10 per cent the worst case scenario. The report noted improvements in supply and demand, but researchers are wary that house prices in relation to incomes and rents (housing affordability) are still between 6 per cent and 10 per cent above the long term average, according to research by the Organisation for Economic Cooperation and Development (OECD).

In contrast, in other countries where housing bubbles burst in spectacular fashion, such as the United States and Ireland, housing affordability fell by 15 per cent to 20 per cent below the long term average. Those declines suggest that housing in Spain still has a way to fall before it reaches affordability levels, at least for domestic buyers.

The overall Spanish economy is still the black cloud hanging over the market, as well as the uncertainty over government policies and the fundamentals of Spain. The elimination of the mortgage tax relief last year certainly threw a wrench into the gears of any recovery, driving up the cost of buying a home for most middle class Spaniards. And Spain’s population continues to decline, reducing demand in areas that can’t count on foreigners buying second homes.

Nevertheless, Citi says that the end of the bust is getting closer every day, though Spain’s excess new housing inventory of 600,000 homes means there will be no general recovery in house prices any time soon. But stabilising incomes could help speed up the adjustment period. And the “modest improvement” in demand for housing, which we can see in the data of recent months might also start to create that much discussed bottom. Recent evidence that building activity is stabilising might also help, reducing the negative impact of the sector on Spanish GDP in the next few quarters.

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3 thoughts on “Citigroup Predicts More Drops in Home Prices

  • Pete Barcelona says:

    An often ignored factor in this supposed recovery is that the younger population (up to age 30) has a level of unemployment over 50%. These are the people that need to get onto the bottom of the property ladder to allow the others to move up. So many capable younger adults have also l migrated to other countries for work and are not included in this astronomic figure. Some people say that unemployment is really a lot lower due to

    • Pete Barcelona says:

      People working on the black economy but these will not therefore get mortgages. And then in. Catalunya, the local government increased property sales tax to 11%!?!?!? So the chances of making enough of a gain to move up the ladder (if you were lucky enough to escape negative equity) will probably be swallowed up by this hugely greedy tax.

      • Mark Stücklin says:

        Yes Pete, those are valid points. Spain has a fast ageing population, and the young either don’t have jobs or have precarious jobs. So who will buy the property in places that don’t attract foreign buyers? However, the ITP in Catalonia is 10%, not 11%, though it’s still a crazy tax rate for property transactions.

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