Outlook 2016: The Housing Market

11 January 2016 – El Mundo

(….) Gonzalo Bernardos, Economist and Director of the Real Estate Masters at the University of Barcelona; José García Montalvo, Professor of Economics at the Pompeu Fabra University; Julio Gil, President of the Real Estate Research Foundation (FEI); and José Luis Ruiz Bartolomé, partner at Certus Capital; outline their predictions for the residential market in 2016. In general terms, all of them consider that the improvement that began in 2015 will strengthen in 2016… political uncertainty permitting.

Increasing prices

All of the experts agree that house prices will rise this year. But they differ in terms of their view regarding the size of this increase. Bernardos is the most optimistic and talks about a “splendid year” with an average price rise of 12%. (…).

Ruiz Bartolomé is more conservative. He expects the annual increase to amount to around 3%-5% in 2016 – “the year of consolidation” – and warns that there are “regions that will not begin to recover until 2017”. For García Montalvo, “in Madrid, Barcelona, the coast of Málaga and a few other areas, prices may rise by between 5% and 10%, whilst on aggregate they will continue to be stable with small variations”, he says. “Nevertheless”, he warns, “there are significant political risks that could have a substantial impact in the market”.

More accessible credit

Access to mortgages will continue to relax in 2016, according to most of the analysts, but their view vary regarding the intensity. For Ruiz Bartolomé, demand for credit will be prudent, whilst for Bernardos, it will be more decisive. “Banks are going to pursue clients”, says the latter, who calculates that 30% more mortgages will be signed this year. (…).

Bernardos even says that financial institutions will grant almost 100% of the appraisal value of homes to those individuals who earn more than €4,000/month. In terms of the cost of credit, they praise low interest rates – and expect Euribor to enter negative territory within a year. Gil also expects that credit will continue to flow and hopes that it will be limited to solvent demand. At the same time, he highlights that “we are living in the best financial situation in terms of interest rates to buy a home”. He does not expect these circumstances to extend beyond 2016, once rates in the USA begin to rise in earnest.

More younger buyers?

(…) In terms of the profile of buyers, Bernardos is clear: “Almost everyone who has a job will be able to afford to buy a house, provided they have some savings – around €20,000”. The economist refers to those households with monthly incomes of €1,800 (young couples with salaries of €900 each) and points out that he is talking about homes worth between €100,000 and €150,000 – “the best sellers”. He expects house purchases to increase by 20%, to reach 490,000 operations per year.

Despite the aforementioned “relaxation” in terms of credit, García Montalvo does not expect that young people will be able to return to the market, at least in the short term, due to the high rate of youth unemployment, the predominance of precarious (employment) contracts and low salaries. Gil shares this view. (…).

More powerful sellers

After years at the mercy of demand, sellers are going to gain strength once again. “They will regain their bargaining power, primarily, in the cities. If they set reasonable prices, they will not have to offer discounts”, says Bernardos. “As demand increases, so too does the power of sellers. In 2016, the situation of sellers will improve in general”, agrees Ruiz Bartolomé. (…).

According to Bernardos, property developers will increase their prices. “Property developers (with projects) in good areas will increase prices three times between the project launch and project completion”.

New builds will increase

(…) “Whilst in 2015, permits were processed for 65,000 new homes, in 2016, we expect that figure to increase to 100,000 units. The best sign of the recovery is that in 2015, property developers bought a lot of land in the large cities, as well as in the suburbs”, says Bernardos.

Ruiz Bartolomé thinks that residential developments will grow even further because “dozens of investors and property developers are looking for operations”. He also warns about the shortage of good quality land. (…).

Turning point for the rental market

With the tailwind supporting the market to buy, 2016 will represent a turning point for the rental market, according to the experts. Following its meteoric rise in recent times, the rental system will now stabilise. “The proportion of homes being rented will start to stabilise”, says García Montalvo, who is in no doubt that “the rental market will strengthen as the main way towards emancipation, just like in other countries that are developing in a similar way to Spain”.

“In general, Spaniards still prefer to buy rather than rent if they can afford to”, says Ruiz Bartolomé. Having said that, he clarifies that “there is still rental demand from those who cannot afford to buy and also from young people with a new vision of housing as a necessary cost that must be covered rather than as an investment or status symbol. (…).

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake