2015: The Year The Housing Market Will Take Off

26/12/2014- Expansión

THE RESIDENTIAL MARKET’S TURNAROUND IS COMING / Analysts believe that the housing sector is beginning to show signs of stabilization, especially in big cities. Next year, it is predicted that more homes will be sold, more mortgages will be granted and more buildings will be built, although still at low levels. Regarding the change in housing price, experts believe it will move towards stabilization, but fall more in the areas that still have much ‘stock’.

The residential market has hit rock bottom after seven years of freefall. This means two things: first, the sector activity is minimal; and second, it will finally start to go up again. In 2015, more homes will be sold, more buildings built and more mortgages granted, according to all the experts consulted by EXPANSION. There is no unanimity, however, regarding the outlook for housing price behavior. In any case, the consensus is that both the falls or rises will be moderate.

Is it recovery we’re talking about? No, not yet. But it is starting, little by little, to take off. As exemplified by José García Montalvo, Professor of Economics at the Pompeu Fabra, “If 2014 was the year ‘zero’ for the housing market, 2015 will be year ‘one’; we’re starting from a very low ground and everything is subject to the international and domestic economy, but next year will be better than this one for the residential market.”

Indeed, 2014 marked the turning point that the real estate sector was seeking. Sales began to grow again, mortgage lending rose, prices increased slightly in certain provinces, housing became a profitable investment and rent began to gain a few points. Vital signs in residential construction have come round.

Goodbye, housing slump, hello, “sustainable recovery” – explained the director of the research department at pisos.com, Manuel Gandarias, on the outlook for 2015.

“We have seen increasing sales in recent months and we expect 2014 to close with 310,000 household transactions, an increase of about 7% with regard to last year,” said Gandarias, as an introduction to his forecasts for the coming year. “The expectation for 2015 is higher, although there is some uncertainty as to how the new tax reform will affect sales. But all macroeconomic indicators point to growth in sales.”

Jaime Díaz de Bustamante, partner of the real estate agency, Ramón y Cajal, stresses that “there are four factors that will significantly impact the intention of buying a home in 2015.” These are “the general election, the high level of unemployment in Spain – which can lead to a high supply and a much reduced demand –, increased inversion of the age population pyramid – the age bracket for youth between 30 and 40, which is very important for potential buyers, is increasingly limited –, and the increased rental rate.”

In addition, construction activity will rise more than 10%, according to Julio Gil, president of the Foundation for Real Estate Studies. “We’ve hit rock bottom. The possible adjustments will be more and more moderate. Real estate activity will begin to grow again in 2015.” Very slowly, cranes will return to sneak into the country’s urban landscape, but still far from the levels considered sustainable for the construction sector to meet the housing demand (300,000 per year).

In the first three months of 2014, the only months that have official data, the construction of 7,700 homes began, suggesting to many analysts that the year will not close with well above 35,000 homes, a negligible level compared to the 665,000 that began in 2006, when the bubble was boiling at maximum heat. Therefore, it is very easy to exceed that figure of 35,000 in 2015, but this is not a definitive indicator of real recovery.

What can underpin the beginning of the takeoff is mortgage lending, which will play a key role in a year of remarkable macroeconomic growth as is estimated for 2015, according to the predictions of the major brokerage houses (GDP will advance more than 2%). The subscription of bank loans for housing payment has been growing in recent months at rates of 30%, which is a high rate, but only in comparison to a year of near stagnation as was 2013. Today, the mortgage market is still not even 25% of what it once came to be. “Although to a very limited extent, the long-awaited mortgage financing seems to have arrived,” said Beatriz Toribio, head of the research department at fotocasa.es.

As for the prices of apartments, there are more questions, but the consensus tends towards stabilization. There will continue to be discounts in most provinces, but “they will be lower; they will have less bargaining power,” said García Montalvo. The Spanish average home costs 6.2 annual salaries of a family. For its price to be reduced to five annual salaries (which would be considered “sustainable” in the context of wage cuts), then apartment prices should lower another 20%. Thus, in general, the price adjustment might continue.

 “In national terms, they will rise slightly (from 0.1% to 5%), but in some mature markets of Madrid, Barcelona, etc., they will rise higher,” said José Luis Ruiz Bartolomé. This property consultant in 2010 wrote the book, ‘Adiós, ladrillo, adiós’ (in English, ‘Goodbye, Brick, Goodbye’) and now another one called ‘Vuelve, ladrillo… ¿vuelve?’ (in English, ‘Brick is Back… Again?’) That says it all.

Original article: Expansión (by Juanma Lamet)

Translation: Aura REE