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The Basque Real Estate Market Has its Best Semester Since 2010

8 August 2018

Housing sales rose by more than 7%, with 10,166 operations in the year to June, the highest level in eight years.

The Basque property market is continuing to gain rhythm as it traverses its fifth consecutive year of growth. Between January and June, more than 10,000 homes were sold in Euskadi (the Basque country), most of which were existing homes, the same as in the first half of 2010 and increasingly close to the 15,000 sold at the beginning of 2007. The economic improvement and the rebound in employment are stimulating demand and pushing up prices, softened in part by the low cost of credit.

Some experts are already warning of a potential new housing bubble like the one that caused the crisis to explode in 2007, even though the wounds from the last crisis have yet to fully heal. Last year, activity in the Basque construction sector grew again after nearly a decade of contraction, thanks to a recovery in housing construction. The sector is also seeing hopeful data regarding employment, which grew strongly in the second quarter of 2018 despite the slowdown in hiring in the Basque industrial sector.

The key to the maintaining the continuity of this virtuous cycle lies in the purchasing power of workers, especially young people. Salaries are the engine of the economy; hence the growth of the real estate market is linked to the progress of the economy in general. High prices, in this case, are a handicap that slows down the recovery of the sector. In this, the low cost of credit is a boon, which can encourage many families to take the plunge.

In the first half of 2018, 10,166 homes were sold in Euskadi, according to the INE’s data, the best result since the first half of 2010. Despite the slowdown in June, with a year-on-year decrease of 6.7%, operations grew by more than 7% in the first six months of the year. This would maintain last year’s pace and lay the foundations for a fifth consecutive year of growth.

The Basque real estate market bottomed out in 2013 when there were fewer than 11,000 transactions during the year as a whole – and just 6,300 between January and June. The trend changed in the second half of 2014, and the market began to see increasing signs of reactivation and consolidation in the following years. In 2017, just over 17,000 homes were sold in the Basque region, and the figure is expected to near 20,000 this year, practically double that of 2013, and not far from the record year of 2007, when 26,000 homes were sold.

The sale of new housing increases

Most of the sales have corresponded to existing housing. Around 80% of the transactions in the first half of the year involved previously existing homes. However, there has been a clear upward trend in the sales of newly built homes, which saw two consecutive monthly increases in May and June. For the semester as a whole, the sale of new flats increased by 10% compared to January-June 2017, higher than the average for real estate market in general.

On the other hand, although transactions involving existing homes do not directly affect the operations of the construction companies, those sales are also a reflection of the dynamism of the market and, although this is not always the case, a sign of an improvement in the perspectives and economic capacity of many families.

The acceleration of the real estate sector is supported by an increase in mortgage loans, which rose by 8% last year and continue to rise in the first half of 2018. The market is waiting to see the effect of the expected change in Euribor rates. Those rates fell below zero at the beginning of 2016, but have since started to rise again, albeit very slowly. For now, Euribor rates are still negative, generating savings for mortgage holders, but experts they agree that this will not be the case for long. The ECB hopes to put an end to the currently ultra-low interest environment, which would push Euribor upwards.

Although this factor can be a brake in the medium term, in reality at the moment, it serves as an important stimulus for the market. The fear that the cost of mortgages will increase, in many cases, leads to a decision to bring forward any planned purchases, to take advantage of the banks’ low rates.

The rise in sales has been particularly pronounced this year in Araba, where 450 homes more homes were sold more than in the first half of last year, reaching roughly 1,900 operations. Bizkaia (Biscay) recorded an increase of 300 homes compared to the first six months of last year, exceeding 5,200. In Gipuzkoa, whose capital has the most expensive flats of the three territories, there was a slight decline in the number of sales in the year to June, with just over 3,000.

In the whole of Spain, housing sales rose by almost 11% between January and June, according to INE data, which confirms that, in general, the Spanish market is somewhat more dynamic than the Basque market. In any case, the semester closed out with a smaller advance than the one in May, 13% than in April, above 15%.

Much of the slowdown was produced by the tepid data in June when sales in Spain rose by an anaemic 1.8% while avoiding the downturn in the Basque country. In April, the Spanish real estate market saw its best growth since the beginning of 2007, recording an increase in sales of 30%. The strong start to the year, therefore, gives some leeway for the type of retrenchment seen in June, and experts believe that growth will continue for the rest of the year.

Original Story: Deia – Adrián Legasa

Photo: Oskar M. Bernal

Translation: Richard Turner