Spanish house prices are back on dry ground after almost a year under water, according to the latest figures from the Association of Spanish Notaries. Nationally, average house prices in terms of euros per square metre rose almost 4% in June, and 2% in July.
Home sales have had a much better pandemic than house prices. As you can read in my latest report on the Spanish property market, home sales were driven down for a few months at the start of the pandemic, but have been growing, or even booming, almost every month since. House prices, on the other hand, fell in 11 out of 12 months between June 2020 and May 2021, but have recently returned to growth, as illustrated by the chart above.
House prices as recorded by notaries in sales witnessed by them, and declared on the deeds (which can vary from actual sales prices if there are under-the-table cash payments involved) held up quite well at the start of the pandemic. Whilst sales plunged 37% in March 2020, 70% in April, and 52% in May, Spanish house prices rose by 2%, 7%, and 5% respectively, before turning negative in June 2020, and staying that way for almost a year.
It’s not hard to explain the stickiness of prices at the start of the pandemic. The sales witnessed by the notaries in that period had been agreed before the pandemic struck, so most buyers had to honour the price they agreed to in the reservation (arras) contract. It took a few months before buyers were free to leverage the shock of the pandemic to drive down prices.
Now that sales are performing so strongly, rising in 10 of the last 12 months, and jumping 25% in July compared to the same month in 2019, suggesting that buyers have more than recovered all the ground lost to the pandemic (at least for now), it makes sense that vendors are recovering the pricing power they lost in the slump of the pandemic. Vendors will be noticing there is no shortage of buyers around right now, and adjusting their prices upwards in response.
But if you look at the regional picture, you see wide variations that don’t follow the sales story. The next chart shows the July change in house prices broken down by regions. Prices in July were up by 12% in the Balearics, and 11% in the Canaries, and by 39% and 18% respectively in June. At the other end of the scale, prices fell by 2% in Catalonia, where local Government policies might explain why prices are not rising like most of the rest of Spain.
However, if you look at home sales in the year to date (July) compared to 2019, you find the islands are the only territories where the market is still significantly smaller than it was in the same period of 2019. So sales are relatively lower yet prices are higher than any other region. Why?
At least in the Balearics, the answer could be a shift towards the higher end of the market. Local agents report they have never been so busy at the top end of the market. Engel & Völkers Mallorca report they are selling at the premium end like never before. “The transaction volume for real estate has doubled compared to the same period last year,” explains Florian Hofer, Managing Director of Engel & Völkers Balearics. “We are on course for a financial year with the highest turnover in the company’s history.” Between January and June 2021, the average sale price recorded by Engel & Völkers for residential properties in Mallorca was €1.68m euros compared to €1.63m a year before.
So it appears there are more premium market sales but fewer sales in total, which would explain why the average square metre price of property sold in the Balearics is going up whilst total home sales are still down compared to 2019.