Two banks have recently published their forecasts for Spanish house price declines in the light of the coronavirus pandemic, with a consensus of -6% that will strike many readers as optimistic.
Both the giant Swiss bank UBS, and the mid-sized Spanish lender Bankinter, have published reports forecasting a 6% average decline in Spanish house prices this year, as a result of the Coronavirus crisis.
UBS makes the point that price falls will be above average in second and third tier locations, whilst prime locations, especially in city centres, will fare better thanks to stronger foundations of demand.
Bankinter warns that sales involving foreigners will be the hardest hit, at least this year, which implies an extra drag on house prices in that segment. “We expect transactions involving foreigners to be much reduced in the coming quarters, given that some limitations on international movement could be maintained.”
The short-term decline in sales is expected to be dramatic, and not just in Spain. “Without notaries, registrars and appraisers in action, real estate transactions should be close to zero whilst they maintain the actual lockdown measures,” says Bankinter. “We assume that these measures will directly affect three months of sales.”
Beyond the lockdown brake on housing market activity over the next one or two quarters, both banks warn about the economic consequences of the crisis looking further out.
Deep recession and massive disruption
UBS talks of a “deep recession and enormous fall in employment” that will hit demand for housing. They also forecast similar trouble in commercial property, and the biggest problems of all in tourism-related property. Price declines will be swift and across the board, with commercial and tourism-related assets taking the biggest hit.
Bankinter warns of “massive disruption for the residential market” from the Covid-19 pandemic that will simply wipe out a certain segment of demand that is left without any purchasing power, whilst others segments delay purchase decisions by six to twelve months as a consequence of the economic crisis unfolding, and worries about job losses. Bankinter forecasts sales down 35% this year to around 326,000 transactions, the lowest level since 2014.
On a more positive note, Bankinter argues the crisis will bring housing costs more in line with salaries, rebalancing a housing affordability ratio that suggested house prices were overvalued in hot markets like Barcelona and Madrid. That would be good for potential buyers and tenants left standing with purchasing power after the crisis. Residential land prices are forecast to drop by 20%.
Recovery? Next year
What about the recovery? In the wider Spanish economy, consumption and investment will start recovering this summer, but leisure and tourism will start later, followed by a slow and prolonged recovery in the housing market spread over 2021 and 2022, forecasts UBS.
Bankinter also expects a recovery underway in 2021, with a better balance between supply and demand for housing, notably strong rental demand driving attractive rental yields for investors.
An average decline of 6% in Spanish house prices this year might sound optimistic to readers of this blog who have seen the results of my Coronavirus and the Spanish property market survey, where 57% of respondents expect holiday- home prices to fall by more than 10%. You can see links to the survey articles below.