Spanish home sales figures released for November 2019 show a clear downward trend in a market that has no reason to expect sales to turn around anytime soon.

Home sales figures come from two official sources: 1) The Association of Spanish Notaries based on sales witnessed by them in the month and 2) The Institute of National Statistics (INE) based on sales inscribed in the Land Register by the Association of Spanish Land Registrars. The notaries’ figures are more timely as they count monthly sales, whilst the INE figures offer more detail but lag the market by a month or two. So when the notaries’ numbers go down one month you can expect a similar decline to show up in the INE figures a few months later, though it doesn’t always work that way because the notaries tend to revise their figures significantly for up to 8 months afterwards.

So what happened to Spanish home sales in November?

Spanish home sales in November 2019 according to the notaries

Data from the Association of Spanish Notaries based on sales witnessed by its members in the month shows sales down 5.6% to 47,182 home sales closed in November (chart at top). Sales have declined in five of the last seven months, and six of the eleven months this year, after almost continuous growth since the start of 2014. And if you look at the 12-month rolling total year-on-year, to get a better sense of the underlying trend, you can clearly see in the next chart how the market has been slowing down since the summer of 2017, and has now gone into reverse.

Spanish home sales inscribed in November 2019 according to the INE

November figures from the INE based on sales registered by the Association of Spanish Land Registrars shows inscriptions in the Land Registry down 8% to 38,680 including subsidised housing, known as VPO. Excluding VPO the free market was down 7% to 35,321, and if you work out the difference you’ll spot that there’s not much affordable housing / VPO being offered in Spain (8.6% of the market).

Once again, if you look at the year-on-year change in the 12-month rolling total you see the the downward trend very clearly (next chart). So it’s time to face the fact that the Spanish housing market recovery has run out of steam, and a little prematurely at that.

Sales were down in both the resale market (-9%) and the new home market (-5%).

Spanish home sales in November 2019 by region

By region sales were down in most places of interest to foreign buyers with the exception of Andalusia, where sales were up on the Costa del Sol, Costa de la Luz, Costa Tropical, and Almeria. Sales were down everywhere else, in particular the Costa del Azahar in Castellón province, down 31%, where the market crashed further and recovered slower than other areas.

If you look at year-to-date (11 months) regional performance but the real carnage is in the Canary and Balearic islands where sales this year are down by double digits in both cases.

Why is the Spanish property market slowing down?

The new mortgage law introduced in June undoubtedly unsettled the market and put a break on sales over the summer, but as you can see from the charts above, the slowdown has been taking shape since mid-to-end 2017. What are the headwinds that are blowing back on the market? As I see it they are as follows:

• Political uncertainty and instability, especially in Catalonia – one of Spain’s biggest housing markets
• Spanish economic growth running out of steam, with unemployment rising
• High transaction costs biting harder as house prices are higher
• All the usual Spanish market problems like unprofessionalism, and the lack of transparency, continuing to deter potential buyers, especially when other factors are giving them doubts
• Brexit undermining British demand – the most important foreign market
• Spanish tax and rental laws that deter investors, especially foreign investors
• Weakness in the global economy

The high transaction costs in Spain (10% to 15%) take a big bite out of your capital, so people need house prices to rise to compensate for transaction costs. House prices tend to rise with higher demand and sales, but when sales go soft, people might be more inclined to delay a purchase. So this downward trend in sales could create its own headwind.