Bank does about-turn on house price forecast as market performs better than expected

spanish house price forecast

In its latest report on the housing market the Spanish lender Bankinter has revised its house price forecasts from a decline of 1% to a rise of 4% this year as the housing market performs better than expected.

The bank has changed its opinion based on recent statistics showing house prices rising along with disposable household income, helped along by record low borrowing costs. Home sales are forecast to rise 20% this year, up from 10% in the previous forecast.

The latest figures show house prices rising in 2021

Household disposable income has risen back to pre-pandemic levels in part due to the furlough scheme that offset the economic problems the bank forecast last year. As a result, household balance sheets are better than expected, though of course the same can not be said for the national debt. That’s a problem for another time.

Cheap financing is a big part of the story. Mortgage lending has recovered strongly from the pandemic slump in the first half of last year, and lending in August was the highest it has been since August 2007, according to the latest figures from the Association of Spanish Notaries.

Spanish house price buoyed by increased mortgage lending

60% of mortgages are fixed rate and given the low cost of borrowing, the affordability ratio of buying a home has fallen to 30% of income, below the 34% historical average, according to Bankinter. Even so, house prices could be overvalued by 5% in relation to incomes, warns the bank.

Bankinter now forecast sales of up to 500,000 in 2022, with 400,000 resales and 100,00 new home sales, though residential construction continues below the level of “structural demand” meaning “there is room for growth in new home building.” 

The bank assumes that building will increase to meet demand. However, you could also argue that new home building will decrease because of rising construction costs and government policy that discourages investment in new developments, as I do here.

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