The credit rating agency Fitch considers that the price of properties in Spain will drop by an extra 15% due to the unfavorable conditions of the Spanish economy, as included in a report on the mortgage residential market, where he estimates that the delay in payments can reach 11,4% in Spain.
Fitch explains that, since the crisis started, the sales in the real estate sector have dropped by 70%, while prices have only done so by 25% (33%, according to Tinsa), a downward tendency which should continue due to surplus of around one million homes, the great number of evictions carried out in 2008 and the credit restriction because of the deleverage process of banks.
“It will take many years to absorb the stock of homes even if sales reach levels prior to the crisis”, the agency assures on the situation of the Spanish market.
In general, the agency stresses that there are “considerable worries” on Spain, Portugal, Greece, Ireland and Italy, countries which will have “depressed mortgage loans, continuous decreases of property prices and pressures on incomes and trust of consumers.”
Fitch foresees the greatest drops on property prices in these countries due to the fragile forecast of credit availability, the unemployment, the economic growth and the consumer trust. Property prices will fall by 13% in Italy and Portugal, 15% in Spain and Greece and 20% in Ireland.
On the other hand the agency expects the delays in payments to increase (for mortgages and other credits) in countries such as Spain, Portugal and Italy, due to the increase in evictions and bankruptcies, the high unemployment and the macroeconomic uncertainty. It will reach 11,4% in Spain, 9,9% in Portugal and 9,1% in Italy, figures which are still far from the 21% in Ireland and 18% in Greece.
Fitch claims that the Spanish mortgage market will deteriorate “greatly” during 2013, due to the discouraging forecast on unemployment and the loss of subsidies for long term unemployed with mortgages. On the third quarter of 2012 (last figures of the Bank of Spain), the country registered a delay in payments for mortgages of 3,63%, around 23227 million Euros.
On the other hand, it does not see an increase in interest rates on the short term and hopes they will remain at their historic minimum rates in order to avoid further evictions. Unemployment will therefore be the main cause for default in 2013.
“Nevertheless, the Spanish real estate market is extremely vulnerable to an increase in interest rates on the long term”, Fitch stresses, as most mortgages in Spain are linked to the Euribor.
Source: El Mundo