Mark Stücklin
In July 2008 an industry leader forecast a real price decline of 30pc within three years that “contrasted sharply with comments from other executives in the sector and Housing Minister Beatriz Corredor, who have played down the extent to which prices will fall,” according to Reuters. How did that maverick forecast pan out?
I have a news alert set up with Google to send me all the latest articles published online that mention ‘Spanish property’ and yesterday morning the first item on the list was an article at Reuters with the title ‘Spanish house prices to fall 20-30 pc’ so I clicked through and started reading the article with great interest.
The piece starts off by explaining that “House prices in Spain will fall up to 30 percent in real terms within three years and the property sector faces at least two years of recession, the head of one of Spain’s biggest real estate firms, Colonial , said on Tuesday.”
“The next two years are going to be very hard. We need to win time and to put on our hard hats because hard times are on their way,” said Mariano De Miguel – the first high-profile property executive to forecast such a steep fall in Spanish house prices. De Miguel forecast that within two or three years house prices would be “between 20 and 30 percent cheaper” in real terms.
At first it struggled to make sense of the idea of an impending Spanish property crash given the current state of the market, but then I realised that Google had just sent me as ‘news’ an article published in 2008. Then it made perfect sense. But I can’t explain why Google chose to send it to me now, 16 years later.
Rather than write-off the time I spent reading it I thought I would check how well the 30pc price decline prediction panned out, with the benefit of hindsight.
Looking back
So, what actually happened? Using data from the notaries’ association we can see that average Spanish house prices declined just 13pc in nominal terms, and 17pc in real terms by 2011, so Sr. Miguel was wide of the mark with his forecast of a 30pc decline in three years. In this respect he was too pessimistic.
However, Spanish house prices didn’t decline for three years, they declined for six years, and if you look at the peak-to-trough decline, Sr. Miguel was much closer to the mark. By 2014, when Spanish house prices bottomed out, the nominal price decline clocked up was 29pc, and the real decline was 35pc. So Sr. Miguel did a pretty good job forecasting the extent of the decline, he was just wrong about how long it would take.
In a way, the worst thing about the Spanish property bust wasn’t how big it was, but how long it lasted, which was in part caused by the country’s denial of the situation. Spain kept on kicking the can down the road trying to avoid the bitter medicine. Ireland also had a spectacular property bust, but dealt with it much quicker by setting up a ‘bad bank’ and writing-off the losses sooner. Spain took much longer to grab the bull by the horns.
Spanish property prices still haven’t recovered to where they were in 2008, neither in nominal or real terms. In 2023 the average Spanish house price was 7pc below 2008 in nominal terms, and 28pc below in real terms. Sr. Miguel was talking about a 30pc real decline in three years. Nobody imagined that the average real Spanish house price would be almost 30pc lower 16 years later.
