Bankinter: House Prices Will Rise By 3%-4% In 2017 & 2018

20 February 2017 – Idealista

The rise in house prices is starting to run out of steam and will become more moderate over the next two years. That is according to forecasts from Bankinter, which explains, in a report about the real estate sector, that the limitation on the upwards potential is the consequence of several factors.

On the one hand, prices are now reaching their pre-crisis levels in many areas, primarily in prime locations and, on the other hand, the financial effort that families are having to make to acquire a home is starting to increase once more.

As a result, the capacity of families to access the residential market will be limited if prices rise at disproportionate rate. In this way, Bankinter estimates that house prices will grow by between 3% and 4% in 2017 and 2018. Moreover, the entity insists that, despite the moderation in price increases, the residential market will continue to rise.

One of the reasons is the shortage of supply, given that the number of finished homes is still at historical lows (40,000 homes were completed in 2016) and the fact that that figure cannot cover the normalised demand of around 200,000 new homes per year. “The combination of the scarcity of supply and the increase in house sales (which exceeded 400,000 operations in 2016) will continue to put upwards pressure on prices”, said the bank, which insists that, in this context, prices will continue to rise.

On the other hand, the report highlights the appeal of large cities, primarily Madrid and Barcelona, which are registering YoY price increases of between 4% and 7% and which have now recorded increases for eight quarters in a row. By contrast, average prices are still adjusting downwards slightly in YoY terms in other cities such as Bilbao and Sevilla.

Another factor that is also affecting prices is the increase in rental prices, which are also being driven upwards by the evolution of leases in the large cities, where, like in the case of the purchase market, there is a shortage of supply and high demand.

Demand for 500,000 homes.

The financial institution predicts that residential demand will continue to rise. “The upwards trend will continue for the next few years. We expect growth of almost 10% in 2017 and for demand to reach 500,000 homes by 2018”, explains the report.

But what is behind this increase? As sources in the sector have been commenting for several months, the drivers of demand are economic growth and the creation of employment, as well as the fact that housing is becoming more attractive as an investment opportunity and that financing conditions are still accessible.

Nevertheless, and this is where the experts are focusing, none of these drivers are reducing the effort that families are having to make to buy a home.

“The effort (that families are having to make) has risen again to 6.6 years of annual household income (compared to 6.2 years at the end of 2014) and there is no scope for improvement in terms of financing conditions. Finally, Sareb’s marketing of discounted homes located in areas characterised by oversupply will continue to limit the increase in average prices”, said Bankinter. (…).

Original story: Idealista

Translation: Carmel Drake

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