Spanish property market growth period over, but no crash on the way, says mortgage industry foundation

Spain’s Funcas foundation representing savings banks argues in a new report that the curtains are falling on the Spanish property market expansion, but not to expect a crash.

The Spanish property market started recovering back in 2014, after almost seven years of severe contraction, and now after just five years of expansion, Funcas is warning that the cycle is turning again.

Back around 2008 the likes of Funcas were forecasting a soft landing for the market after a runaway-boom, but it didn’t turn out that way. This time their forecast looks more credible, as this expansion has been shorter, milder, and largely limited to prime locations in capital cities and the best parts of the coast.

spanish property market
Click to enlarge. Spanish home sales index July 2007 = 100. Source: notaries

Recent home sales figures are showing a consistent trend in the last few months towards lower or even negative growth, even though the market is 30% smaller than it was back in 2007, as illustrated by the graph left published by the notaries.

The recent market slowdown can be explained by a similar loss of momentum in the Spanish economy, argue Funcas. “A study of the last fifty years shows that, historically, the real estate sector has always moved in parallel with the economy,” explains the latest Funcas report. ”Therefore, in the current deceleration phase of the Spanish economy, we can expect a moderation of house price inflation in the coming years.”

However, no need to worry about a crash like last time, say Funcas. “The impact of this end of the cycle will probably be moderate because currently we cannot see any important imbalances in the property market like we could see in the previous crisis.”

To back up their argument Funcas point towards data on prices, indebtedness, the financial burden on families all currently at moderate levels. Funcas estimate that house prices in Spain are now just 8% above their historic average, compared to 10% EU average, and around 40% at the peak of the last boom.

Funcas provide the following graph showing how Spanish house prices (blue line) have always moved in close step with Spanish GDP change, which is still one of the strongest in Europe but clearly slowing down.

spanish property market house price change 2019

A slowdown in the housing market increases sales times and shifts the balance of power from vendors towards buyers.

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