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Well, so far we have seen 30-40% reductions pretty much across the board on Spanish property, and there seemed to be some consensus that the bottom of the market would not be reached until the end of summer this year. I felt that this seemed about right.
However, it does seem to me that things are going to be getting worse for a good while longer. Our Spanish friends seem well informed, and take a very pessimistic view of the economy, and as a consequence the housing market. The EU says Spain will be the last in the Eurozone to recover, and things are still getting worse in the Eurozone. Now the banks are lending smaller percentages (50-60%) even compared to a few months back, and not on valuation, but purchase price. It seems like the banks too expect further falls. One fellow forumite suggested that the banks expect a FURTHER 50% fall over the next two years. And of course the banks not lending reasonable percentages will just drive the market down further.
So, I’m interested to hear what other members feel about all this. Will the bottom be here this year, or later? How much further will prices fall?
I appreciate that no one knows, but nonetheless I’d still value you opinions.
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Good question. I´ll share my experience of selling my deceased parents house in Belfast to explain how I come to my answer.
Two years ago this month when the market was at its peak we ´sold´ the property for 435k. Just as we did so the market started to falter. After a few months messing around they pulled out. The same happened with a subsequent buyer at 400k. We eventually had a third buyer at 390k. They however had problems with the valuation of their property. We agreed to drop to 360k and the sale went through. As none of the six children lived in NI we were keen to sell and glad to see the property go to a good home. None of us minded taking the loss.
That house would now fetch 260k and the market there is still falling. It turns out that by taking the hit when we did we saved ourselves a lot of money.
I feel there are a lot of similarities between the Irish (Including NI) and Spanish markets. Both had, until a couple of years ago, a long, strong run of rises. Both economies became over reliant on the property sector and are now suffering high unemployment as a result. The property market had greatly overheated in both countries and the fall is therefore sharper than in most other European countries. It has of course been exacerbated by the credit crisis.
So much we know. The question is how much further, if at all, have the markets to fall? To my mind there are a number of factors at work here but the key is affordability. The Irish figures, whilst by no means perfect, are generally more up to date and reliable than the Spanish ones. They show that despite average falls of 35% people still need to spend 4.5 times the national average salary to buy the ´average´ house. Most independent observers therefore think they still have some way to fall. Consensus is around 15% with inflation doing about half of the work on a pretty well stagnant market for the next few years.
Arguably the best of the available Spanish indices, Tinsa, is showing a drop of 20% from the peak. Anecdotal evidence suggest that that is somewhat lagging between the real market and that the true figure is closer to 30%. If you look at the earnings ratio however it still suggests that the ´average´ house costs over 6 times the average Spanish annual salary. This would indicate to me that the fall still has some way to go to reach normal levels (3-4 times annual salary in most Western economies).
My best estimate is that we will still see another 30% off properties and that that will take about two years.
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That’s a well thought out position, and makes complete sense to me.
For my part, I cannot really see a further 50%, but 30% sounds right, but I do think we will see another 2 years of falls.
The relationship to salaries is a key one. However, I do wonder if (two years) down the road people will be a bit less keen to spend on property (both Spanish & expats). I will be watching with great interest.
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El anciano
I think ‘caution’ will be the word for a good few years. The old saying ‘you can’t go wrong with bricks and mortor’ is so blown out of the water now, I just wonder how long it will be before such investment is regarded as anything like as safe an option as in the last 20 years?. I think prices will reflect that for quite a while?
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If one browses property websites on the CDS it is clear that most property has not dropped anything close to 30%. I have no idea how much/when it will drop. I think it maybe similar to the early 90’s here when by 1995 there were very few properties on sale (few agents to sell them too!). What was on sale was mainly cheap but rubbish. I do think the sales volume on the Costas will be low for at least 10 years.
People aren’t even visiting the coast as much so it is unlikely they are thinking of buying…at any price.
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@katy wrote:
If one browses property websites on the CDS it is clear that most property has not dropped anything close to 30%.
That is true of many sites on the CB also, however my (failed) attempts at buying have shown me that there appear to be two separate markets, There are those agents/sellers who are in denial, and as a consequence are not selling (much) property. Then there are those who really want to sell, these have been moving, and these all appear to be at least 30% below peak.
Now, it would be easy to class these reduced properties as distressed sellers, and some are. But, others are just being realistic. Two of my old neighbours sold in the last 18 months, and neither were distressed sales. But they didn’t even ask for the silly prices seen in most agents, they just felt that they were realistic.
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But to counteract are three scenarios scenarios.
Firstly the younger spanish who were priced out of the market but have good jobs and parent cash as a large deposit are around. Also spanish investors who are looking at the drops, bear in mind these guys have a different outlook on a property and will buy north facing units with 1 bathroom if the location is good and price good.
Secondly the lack of confidence in banks is driving people to look at bricks and mortar as at least they own something tangible as opposed to only part of their monies being insured if the bank goes under.
Thirdly, people who can afford a second or retirement home are not going to wait as this is a want it now society, and are buying.
There is quite a bit of interest out there, how much is actually converting is another matter!
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Indeed Katy, if you look at the estate agents windows on the CDS or web sites such as Kyero the falls are nothing close to 30%. More like 10%, if at all.
Regardless of the published asking prices I think the actual selling prices have in fact fallen quite substantially. (Inez, I think it was you who posted the 30% figure on another thread a couple of weeks ago?).
What I have seen is that good value properties have indeed been selling. That description certainly could not be given to the vast majority of properties that are in estate agents. It is interesting to note that both Inez and El anciano have cited that the buyers they know about are Spanish. Given this you can be pretty sure that they know the market a lot better than most expats hence don´t pay anything like the prices that are being asked for.
When I eventually sold the house in Belfast, about a year into the slump, most people were still asking close to the price at the peak of the market. As I had cut the price aggressively the house sold and we ended up doing rather well out of the deal. Two other houses in the same street are still on the market two years on. Now with much lower asking prices than we sold for.
I have no doubt that these inflated asking prices will indeed come down. It is a basic of market economics. Sooner or later enough people will need or want to sell enough properties that the prices they ask for will drop. How long this ´denial´ phase lasts nobody knows.
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Owners dont want to be seen having dropped their prices but in reality are accepting a lot less. For example an offer standing on a villa in El Paraiso area on a villa valued around a million, official asking price 820k, offer at 600k, agreed at 695k (still got to see if it goes through of course!) German buyers. And other similar examples.
Owners are all over the place and buyers offer low, so this will be one reason why asking prices havent come down a lot. I know I havent changed prices on my site, but the actual selling prices are a lot under.
All fun and games!
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Inez, your last post made me think of Chris McCarthy´s point on the ´Diary of a vendor´ thread.
I am afraid it is very common that whatever your property and whatever your price, and no matter how you present that property in its best condition or in relation to the market as you know it to be … if you are selling today, a substantial number of prospective buyers believe that they can simply offer 50% off and will act dumbfounded when you say of course no.
Given what you have just posted it strikes me that vendors (and agents???) are creating a problem for themselves. By asking for prices that they know to be too high they are discouraging potential viewers/purchasers. By doing that they are reducing activity thus making the market even worse than it would be.
Ireland may well still be in trouble but they have at least acknowledged the fall and prices are now much more realistic. I can´t help feeling that Spain is some way behind.
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I doubt the spanish are buying in significant numbers. A friend’s son is a journalist in Granada, his wife a teacher and they cannot get a mortgage high enough to buy.
If I am wrong then you sellers will have to try new ways of marketing the property. Most spanish will not deal with foreign estate agents as they do not trust them and most do not speak adequate spanish. The majority buy by word of mouth.
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Both posts are true. I do go in at realistic prices, but I have always found that in most cases the owners dont want to know. So as long as it is in teh ball park figure I take it, knowing that by experience, after a few months the prices come to where I suggested, then they are in a better chance of selling.
I dont deal personally with the spanish mainly for that reason Katy. I have a colleague who does and that works very well. I also find being female has its hold ups too, so again my colleague steps in too.
Many cannot get the funds they were told only a few months ago, we qualify to find out prior to showing, otherwise we end up running around like idiots (no comments on that one please!!) 🙂
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By coincidence the opening paragraph of Mark´s latest article, published yesterday, reads thus:
The credit crunch and lack of mortgage financing is still the single biggest problem for the Spanish property market, argues Marifé Esteso, President of the API real estate association in Alicante province, home to the Costa Blanca. The other big problem is excessive asking prices, making the average property still unaffordable, despite recent price declines.
Seems to summarize exactly what we have been saying.
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@Inez wrote:
Secondly the lack of confidence in banks is driving people to look at bricks and mortar as at least they own something tangible as opposed to only part of their monies being insured if the bank goes under.
Thirdly, people who can afford a second or retirement home are not going to wait as this is a want it now society, and are buying.
There is quite a bit of interest out there, how much is actually converting is another matter!
These points are very revelant to the UK market as well, any good property in a good location is being sold easily in our area.
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I believe that finance is much freer now in the UK, this is not the case in Spain things here have gone from bad to worse.
If it is true that demand drives the market, sure things here aren’t so bad, as I know there are plenty of people looking. But the reality is that we need demand, and finance. This is the real issue here now, pricing although important is secondary to available finance, and demand is irrelevant if people cannot get the finance.
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There are a number fundamental differences between the UK and Spanish markets.
– Currency: The pound is (still) relatively low against the Euro. This makes the price of properties relatively attractive to overseas investors.
– Despite its well documented problems the UK economy is much more broadly based than that of Spain. It was/is not nearly so dependent on the property sector.
– There are accurate and timely indices available. The market is thus more open and honest.
– Affordability is now down to 4.34 average income from a peak of 5.84. Still too high but much lower than in Spain.
– The residential market in the UK is almost totally domestic. Expats have a significant impact certain parts of the Spanish one.Given that, I don´t think you can safely draw any comparisons between the UK and Spanish markets. Granted there is some correlation in that high UK prices provide equity for people to purchase second homes overseas. The impact of that is, however, marginal at present.
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I feel that the funds are available to lend now, and that the banks want to lend (as the want the income). But, they are also risk averse (especially in Spain)
So, they are really happy to lend. As long as they are 100% sure they wont loose anymore through bad debts. Hence the small percentages being offered in Spain. The UK, I feel is loosening up, and I’m told that UK banks are lending, still a little cautiously. But not as careful as the Spanish banks.
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This is certainly my experience. People who had approval a few months ago are getting turned down or offered less, but last deal I had go through, young spanish couple got 100% finance on the basis that their savings went into a deposit account with the bank and they were considered a good risk.
Foreign buyers are getting approved, but they have to be squeaky clean and not buy to letters or ínvestors´.
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There is more than one way to acquire a 100% mortgage.
Recently we sold several repossessed properties where the bank took less than the outstanding mortgage. They subrogated the existing mortgages to the new owners which even covered their purchase costs.
There is quite a bit of interest from smaller investors in this type of property where no cash or deposit is involved, however the banks do expect the buyers to have a track record in investment and show profitability even for 2008.
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