Exane: Spain´s Housing Values to Fall Another 10%

2/06/2014 – Expansion

Many believe the prices of houses in Spain stopped at the rock bottom level after almost seven years of free fall. The real slump since 2008 peak posts 41%, the same figures as those registered in 2004. The year-on-year decline of 3.8% noted down in March proves that the slope of price sliding is less and less steep.

As per the analyst firm Exane, on their way down, values have not found the bottom yet. Its experts claim that its not the abrupt slump one shall focus on, but the magnitude of the “great bubble”, as Exane calls it. “It doesn´t matter how deep the bucket went inside the well, but what truly matters is actually how deep the well is”.

Houses in Spain are still overvalued by 10%, says the company scanning its calculations based on the number of years a Spanish family has to spend paying-off their mortgage, among other factors. The 5.8 years required to pay-off a property by one household have never been seen in the UK or the USA, even during their peak times.

Buying a home in Spain today is as expensive as it was in 2007, remarks Exane, aware how odd it sounds. Firstly, the firm argues the affordability rate declined from 26.7% at the end of 2012 to 33.2% at the end of 2013 due to the end of tax incentives for a house purchase.

Furthermore, the decrease in personal income availability due to higher taxes and mortgage prices. The loans for home purchase rose by 70 bps on average between 2006 and 2008 and by more than 250 bps since the beginning of 2013.

According to the report by Santiago López, other factors not looking good for the future property market recovery are the demographical development, unemployment outlook and houses in exceed.

For the upcoming 10 years, the INE (Spain´s Institute of Statistics) portends a 5.6% decline in the population number, especially harming the group aged 20-49, precisely the one which buys property most often.

When it comes to unemployment, Exane admits the new reform will allow job creation and the GDP rise of 1% (up to 1.5% in 2015). What is more, the lingering-unsold 800.000 units will take at least 3 years to liquidate as the purchasing power shall not increase in medium term.


Original article: Expansión (by Alicia Crespo)

Translation: AURA REE