4 February 2015 – Cinco Días.
House construction will not be revived until the upwards trend in prices grows stronger.
Analysts believe that the crisis “has cleaned up” the sector.
The macroeconomic recovery will come first, driven by increased activity and job creation, and then an improvement in the real estate sector. That is the expected path of recovery for the house building sector, one of those hardest hit by the recent crisis.
Paloma Taltavull, Head of the Department for Applied Economics at the University of Alicante explained this yesterday. She is one of the experts that has participated in a study conducted by the Spanish Association of Value Analysis (AEV), which represents more than 90% of the appraisers that operate in the market.
Thus, unlike the forecasters that resolutely claim that the real estate market will recover in 2015, the members of this organisation are much more cautious.
“Construction activity is still at historically low levels, with house prices now bottoming out, having been in decline since 2008”, state the conclusions of the study. However, for how long will prices remain at these low levels? That is the million-dollar question that all of the experts are asking themselves and to which investors, developers, vendors and buyers want the right answer. The problem is that getting the forecasts right with everything that still might happen seems, at the least, very complicated, according to the Chairman and Secretary of the AEV, Gonzalo Ortega and José Manuel Gómez de Miguel, respectively.
Two variables, in particular, always determine the future of this market: employment and access to credit. Although the official statistics for 2014 still need to be corroborated, it seems that there were more house sales in 2014 than in the previous year for the first time since the crisis began. And prices showed a clear trend towards zero growth or stabilisation.
Less property, more rent
And that was because last year was the first year in which Spain created jobs again, rather than destroying them. Moreover, financing terms were relaxed, thanks to the lowering of interest rates and the overall improvement in the banking sector.
However, according to the experts who prepared the AEV’s report, this recovery in employment is still insufficient to boost the housing market. Furthermore, the report highlights the “precariousness of the new jobs that have been created, along with wage deflation and mass youth unemployment” as the three most important factors that give us “few reasons to be optimistic”.
In this context, and given that the restrictive conditions surrounding access to credit for those that do not have a stable job and/or a certain level of income, the appraisers and experts at the AEV are unanimous in their view that “it will take a real and prolonged recovery for young people to be able to buy their own homes. Therefore, everything suggests that the majority of young people will opt to rent homes, whereby aligning with the European average”.
This is causing a build up in the back-log of demand from buyers, who still do not meet all of the requirements to make buying a house a reality. The appraisers’ report reveals that the most recent census data (2011) shows that almost 900,000 nuclei of new homes could have potentially been formed, but were not. If the improvement in employment continues, a large part of this potential demand will become effective and house prices will start to rise slowly as a result, “although we do not expect them to do so on a widespread basis or across the whole country until the end of this year”, predicted Taltavull.
And as for the construction of homes, the experience of past crises indicates that the return to previous levels of construction will be very slow over the next few years and will not become a reality until prices have recovered.
Original story: Cinco Días (by Raquel Díaz Guijarro)
Translation: Carmel Drake