Housing Prices Rebound. Revival or Illusion?

Has the housing adjustment in Spain reached the bottom? This is the big question of the day, after the National Institute of Statistics (INE) announced that the housing prices have registered their first quarterly increase since 2010. Precisely, a climb of 0.7% in the third quarter comparing to the previous three qarters. Moreover, although the year-on-year price rate shows continuous fall by 7.9%, the score is more stable in the period. This might make believe that there are finally signs of the recovery on the real estate market, or maybe it is just an illusion, given that the sales and signing of a mortgage stay at the minimum level.

According to the forecasts of experts, housing troubles have not come to an end six years after the real estate bubble burst in the sector. Generally, they say that in 2014 the light at the end of tunnel will become more visible, in spite of slow pace of the recovery process, which is said to carry on by the end of 2015. It is too early to talk about a real turn in tendency, since the revival will be very subtle.

Prices: It is true that the fall in prices is less abrupt than it was at the beginning of the exercise (in the first quarter, on year-on-year basis, the prices declined by 14.3% and in the second quarter by 12%) and the progression depends on an area. However, for Fernando Encinar from idealista.com the today´s news “might give a deceptive impression that the prices´drop-off is already over, while all other indexes on the market are showing just the opposite”. He also warns that “the euphoria could hold the necessary discounts in prices back even more, and the market revival will be delayed”.

The recently released report of Standard & Poor’s agency reveals that the housing sector will keep declining until at least 2016. “We expect that the real estate market will face price dip of 8% this year, 5% the next year and 1% in 2015”. (…).

Sales: If it comes to sales, the real estate market seems not to budge an inch. According to the Statistics, houses sales marked its loss in October, by falling by 10% in comparison with October 2012, until 22.770 transactions which is the second lowest price since March (22.100).

Carlos Smerdou, the managing director of Foro Consultores, estimates that the recovery “will have to pass through the rise in sales and this is not going to happen yet”. (…) In spite of that, he foresees that falling prices will reactivate demand on the market. “The property prices will tend to stabilize because in some areas there is not much left to reach the bottom and the financial institutions do not lower their houses´s prices so aggresively anymore” he explains and adds that “this is good, because the news about the end of prices fall will suggest the people who have been waiting for further drop that the time to buy has come”. (…).

Mortgages: The experts do not give up repeating that the market won´t revive unless the financing stabilizes. Loan and house purchase go hand in hand. The credit on the part of banks is stopped, as the granting of mortgage for housing rates show. In September, it fell by 31% until 14.856. This is one of the lowest numbers noted down since 2003.

However, the difficulties with obtaining financing caused an increase in the number of purchases in cash this year (70% of all). Most of the transactions have been initiated by foreigners. (…) Smerdou convinces that “banks make a living from granting loans and they will start granting them again not only for their houses”.

Investment: The housing prices drop-off in Spain, until around 40%, is calling attention of the real estate investment funds. (…).

According to a survey carried out by Knight Frank  advisory company among 184 funds, those investors will be ready to buy the real estate assets for 14.000 million Euros, which makes Spain one of the most attractive countries in this aspect in Europe.

Source: Cinco Días