The Bank of Spain says it noticed a “significant moderation in the real estate sector’s adjustment” in the second quarter of 2014, according to its latest bulletin on the Spanish economy.
Residential property investment is contracting at a significantly slower rate than before, with the housing market shrinking just 0.8 per cent on a quarterly basis in the second quarter, according to the bank’s July-August report.
The bank points to recent signs of stability in the number of monthly home sales and acknowledges the positive role that foreign buyers are having on the market. There is also good news to report in the change of trend towards stability in the mortgage market. (Last week Banco Sabadell reported a sharp increase in mortgage loans.) The Bank of Spain has also upgraded its projections for Spain’s economic growth.
Another key indicator showing signs of life for the first time in more than five years is the number of planning approvals for new homes, which has finally stopped contracting, and risen fractionally from recent all-time lows, the bank reports.
House prices are also showing signs of bottoming out, according to the latest data from the Housing Department, cited by the bank. Spanish house prices fell 3.8 per cent over 12 months to the end of March, less than the previous quarter. Peak to present prices are down 31 per cent and 37 per cent in real terms.
Despite the positive signs, however, the market continues to face significant problems.
The market is still struggling to digest the large overhang of new homes built in the boom, most of which are now owned by the banks. That is holding back the home building sector, the Bank points out. “The absorption of the large stock of homes for sale is proceeding slowly, which makes the start of a new building construction cycle more difficult.”
The bank does not mention a related problem, namely that much of the excess inventory left over from the boom is now close to unsaleable. It was badly-built in the wrong place, with unattractive designs, small rooms, and out-of-date fittings. After standing empty for several years this stock is no longer even new. It’s not clear who will buy this property, whatever the price.