Housing: Price Decreases Slow As Sales Increase

17 April 2015 – Cinco Días

The most prestigious research studies in the country continue to improve their forecasts for expected growth in Spain this year and next; and one of the (key) factors influencing this increase in optimism is, without doubt, the performance of the housing sector. This week was the turn of BBVA Research, whose report not only predicted that the rise in GDP this year could exceed 2.7%, it also forecast “an improvement in the basis for housing investment, which continues to reinforce a change in the cycle, both in terms of supply and demand”.

Moreover, the study concludes that residential investment has increased once again during the first quarter of this year, although these increases have been “moderate and starting from historically low levels”.

The General Council of Notaries and Tinsa also published their own statistics this week. The notaries recorded a total of 26,562 house sales during the month of February, representing a slight decrease of 1.9% compared with the same month last year, although that increases to 2.6% for the seasonality-adjusted figures. Despite reductions in January and February, the notaries argue that the trend over the last few months continues to reflect the stabilisation of sales.

“This decrease may be explained by the end of the base effect following the normalisation of the figures after tax breaks for housing were phased out”, says the report. Also, if we analyse the volume of transactions by type of property, we can see that sales of newly built homes dropped significantly, by 34.4%, whereas sales of used homes (which account for more than 70% of all transactions) increased at a rate of 3.4% p.a.

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In terms of prices, INE’s recently published statistics showed that behaviour varies substantially between new and used housing. The average price of house sales in February amounted to €1,192 per square metre, representing a decrease of 3.1% compared with the same month last year. However, whilst the price of second-hand homes barely changed during that period, falling by just 0.1%, the price of new builds experienced an average decrease of 5.8%, compared with twelve months earlier.

Moreover, the notaries calculate that house prices in Spain have decreased by 36.8%, on average, since the start of the crisis, back in 2007.

This figure does not agree exactly with the calculations performed by one of the largest property surveyors in the market, Tinsa, but it is very similar.

According to data published this week by Tinsa (see graph above), which is based on valuations obtained from its network of more than 1,200 surveyors across the country, average house prices experienced a year-on-year decrease of 2.8% in March, compared with a 3.6% drop in the previous month. According to Tinsa’s data, house prices have experienced a cumulative decrease of 41.4% from the peak figures recorded in December 2007.

Overall, the statistics show that the cumulative depreciation in house prices (since 2007) amounts to around 40%, although in areas such as the Mediterranean Coast, the aggregate adjustment amounts to 48.7%.

This fact, which means that in some regions houses today are worth half their pre-crisis values, is what continues to explain that many of the transactions recorded each month are completed without mortgages.

Specifically, in February, only 42.3% of house purchases were financed using a mortgage, which means that more than half were either paid for in cash or were financed using another type of loan that did not require a mortgage guarantee.

The notaries’ statistics also provide information about the average mortgage amount for the purchase of a home, which stood at 75.6% in February. And since more houses are being sold, it is logical to say that the granting of loans for the construction of new developments is also recovering, albeit slowly; the number of loans granted increased by 45.8% in February to take the total number of financed transactions to 335.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

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