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Fitch: Spanish Property Market Stabilising But Still Overvalued


Spanish house prices are still 10 per cent too high, despite a seven-year crash in prices, argues the international ratings agency Fitch in a new report on housing affordability.

Fitch compare house prices to household incomes to work out housing affordability in a selection of countries including Ireland – another victim of a housing crash. Housing affordability has improved dramatically in Ireland, but it still a worry in Spain.

The high price of property in relation to incomes puts home-ownership beyond the reach of many young Spanish adults. Nevertheless, Fitch does not expect Spanish house prices to fall any further.

Fitch includes a map of housing affordability in the main world economies, which only emphasises the continued problem of housing affordability in Spain. “Despite registering seven years of falls, Spanish property prices continue to be over-valued by 10 per cent with respect to household income,” says the report.

Housing affordability is also better in Greece, Portugal, and Italy, where falling house prices and, in some cases, rising incomes, have combined to making homeownership more affordable than Spain.

2015 Forecasts For Spain

Despite the over-valuation in property prices, the agency’s analysts do not believe there will be positive progress in home affordability in Spain during this year.

“Home affordability as measured in relation to household income and house prices could improve marginally because of a reduction in mortgage interest rates,” the agency clarifies. It also estimates that house values will stabilise in 2015 as a result of the gradual opening up of the mortgage market.

Fitch also point out that the end of price adjustment does not mean there will be a sudden rise in prices. In the agency’s opinion, Spain’s high level of unemployment, together with the excess property supply, and the low volume of mortgage approvals – currently at levels lower than those in the pre-crisis years – will prevent a sudden price rise in the residential market.

Turning to bank stocks of repossessed homes, Fitch argue that discounts are coming to an end after a 70 per cent drop in retail prices for foreclosed homes. Buyer expectations of discounts are also on the wane, which will take pressure of the banks and other vendors to offer bigger discounts.

Mortgages Lending

Mortgage financing will determine which way the market goes from here. There are some signs of a recovery in mortgage lending as banks start competing for new borrowers with more aggressive deals, but Fitch warn that falling Euribor base rates could reduce bank profit margins, which might mean banks have to start increasing their spreads, choking off demand with dearer credit.

Overall, Fitch do not sound bullish about the prospect for increased mortgage lending in 2015.

“Potential mortgage owners will continue to be cautious when applying for a mortgage based on the experiences of the last few years,” they conclude.


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