The Previous Recession Lasted 6 Years and House Prices Fell by 30%: What will Happen in this Crisis?

During the crisis that started in 2008, the País Vasco was home to the most expensive house prices, but Madrid saw a better recovery; meanwhile, Guadalajara and Toledo registered the greatest price decreases.

In 2008, the housing bubble that had been growing for almost a decade in Spain, driven by the heat of the country’s economic boom, burst. Then, a period of falling prices and declining sales began in the residential market; at the national level, the market had not yet recovered by the time the coronavirus crisis hit earlier this year.

Last time, the fall in prices lasted 6 years, from the first quarter of 2008, when they peaked, to the first quarter of 2014, when they bottomed out. “Between the period just before the real estate bubble burst in 2008 and the moment just before the recovery, average sales prices fell from €2,017 per square metre to €1,414 per square metre, whereby losing 30% of their value“, explains Antonio Ramudo, Data Scientist at Brainsre.

At the end of 2019, according to the Ministry of Development, only 53% of the value lost during the crisis had been recovered, with the average price reaching €1,734 per square metre.

In terms of sales, the volume of homes bought and sold per year went from 952,805 in 2016 to just 299,953 in 2013, representing a collapse of 68.5%. By 2019, when 567,753 sales were registered, only 41% of the transaction volume executed at the height of the boom had been recovered.

Although the peak in terms of the volume of house sales in Spain occurred in 2006, when almost a million homes were sold, the maximum average transaction price (€2,017 per square metres) was not reached until the first quarter of 2008. “This shows that fewer transactions were being registered before prices started to drop,” says the Data Scientist at Brainsre.

Likewise, the data reveals that, after the 2008 economic crisis, the minimum number of house sales was recorded in 2013, when 299,953 units were sold; meanwhile, the value of those transactions continued to decline until 2014, when in the first quarter the minimum average transaction price (€1,414 per square metre) was reached, a value that had not been recorded since 2004.

In other words, before prices began to increase, the number of transactions began to rise. “An uptick in demand produced an initial increase in transactions and a subsequent rise in prices and, vice versa, the decrease in demand led to fewer transactions being registered and, subsequently, to a decrease in prices,” explains Ramudo.

Madrid and País Vasco, the most expensive regions

The regions with the most expensive residential product are also those that suffered the largest decreases in absolute values. In this way, the range between the maximum prices in 2008 and 2009 and the minimum prices reached after the crisis is greater. Such is the case of Madrid, País Vasco and Cataluña.

When the previous crisis began in 2008, the País Vasco was home to the most expensive house prices, but Madrid saw a better recovery, and thus, according to the latest available sales prices, the Community of Madrid leads the ranking. On the other hand, the Canary Islands and the Balearic Islands – regions with the next highest prices after Madrid and País Vasco – have smaller ranges between their maximum and minimum prices, and in both cases, current prices already exceed the peaks seen just before the 2008 crisis.

Where did prices fall by the most last time?

The Autonomous Regions that recorded the greatest drop in prices were La Rioja, Castilla-La Mancha, Aragón and Cataluña, where house prices decreased by more than 40%. Meanwhile, Guadalajara and Toledo were the provinces where prices suffered the largest decreases last time, with collapses of 54% and 53%, respectively. “The large urbanisations of Guadalajara, around the Henares corridor, and Seseña (Toledo) were victims of these sharp price reductions caused by the sudden lack of demand,” says the Data Scientist.

The autonomous cities of Ceuta and Melilla and the Balearic Islands recorded more moderate price drops, with a loss in value of 20% or less.

Andalucía was the mainland region that registered the lowest price drop, with a decrease of only 25% compared to the peaks of 2009.

In terms of the recovery, the islands have performed the best thanks to tourism, second homes and international clients. In both the Balearic Islands and the Canary Islands, current prices are at all-time highs.

On the other hand, Madrid is the mainland region where prices have recovered by the most, with almost 66% of their value now restored compared to the maximum pre-crisis prices. Andalucía is the second region in terms of the recovery of prices, with almost 49% of their value now restored. In this sense, Málaga is the mainland province that has performed the best since the fall, as it has now recovered 85% of the value lost during the previous crisis.

The duration of the fall

Unlike the coronavirus crisis, the crisis that began in 2008 reached different Spanish regions at different times. Then, Aragón was the first region to see a decrease in house prices, specifically, during the third quarter of 2007; and Extremadura was the last to suffer, specifically, during the second quarter of 2011, almost four years later.

In terms of the regions with the most activity, Madrid was the market that began to suffer first, since house prices started to fall there in the first quarter of 2008; it was quickly followed by Cataluña and País Vasco in the second quarter of that same year.

After Ceuta and Melilla, the Canary Islands was the region where the recovery from the crisis began first; there, values bottomed out and began to rise in the third quarter of 2013 – four and a half years after prices first started to fall. In this context, Cataluña and the Community of Valencia were the regions that started to recover next; they began to record price increases in the second quarter of 2014.

Madrid, meanwhile, did not begin its recovery until the third quarter of 2015, almost eight years after the first decreases, from an average of €3,045 per square metre -registered at the end of 2007- to €2,029 per square meter in 2015. Extremadura, the region that was hit the latest, was also the one whose recovery started last. It was not until the second quarter of 2017, when prices there stopped falling and began to grow.

In terms of the duration of the crisis, from the beginning until the end of the price decreases, there was also considerable asymmetry between the different regions: from 4 and a half years in the Canary Islands to eight years in Aragon.

The highest prices, which exceeded €3,000 per square metre, were reached in Madrid and País Vasco in 2008. Those two regions saw the lengthiest decreases, since the price falls -of 33% and 31%, respectively- took seven and a half years in total. Meanwhile, in Cataluña, the decrease in prices was greater, 43% of the peak values reached in 2008, but it was faster, with prices bottoming out there after six years. By province, there was even more variation, since in Álava and Zaragoza the price decreases lasted 10 years, whereas in Santa Cruz de Tenerife, Cáceres and Jaén, they barely lasted four years.

No-one knows how long this crisis will last and many indicators are showing that the regions where coronavirus will have the greatest economic impact are those that are the most dependent on tourism, especially in the short term. “Although that may be true, if the experience of the crisis that began in 2008 has taught us anything, it’s that the regions that recover first and best are the important tourist centres, such as the Balearic Islands, the Canary Islands, Málaga and Alicante,” explains Ramudo.

Prices in the major cities

In the seven most populated municipalities in Spain, the behaviour of the housing market after the bubble burst was relatively similar. Madrid reached its maximum average transaction price earlier than the rest of Spain, in the third quarter of 2007; whereas the Spanish average for that milestone was the first quarter of 2008. Naturally, in other places it was reached later: Valencia, Murcia and Sevilla recorded their peaks in late 2008 and in Malaga the peak was not reached until 2009.

On the other hand, the minimum values were reached between 2013 and 2014 in most regions and since then prices have been rising consistently in the main municipalities.

Strong increase in the sale of new build homes

The years 2007 and 2008 were when the most new-build homes were sold in Spain, with 411,726 such homes transacted. That was also when the percentage of new build sales over total registered transactions reached its peak. Between 2008 and 2009, more than 50% of all sales involved new build homes, a percentage that has gradually decreased until the Covid-19 crisis, although it has remained relatively stable at around 10% since 2016.

In 2016, the new home market bottomed out with just 46,927 transactions registered, representing 11.5% of the more than 409,760 homes that were sold in total (new and second hand). Since then, the number of new homes sold has been increasing slightly, to reach 56,195 operations in 2019.

Had Madrid and Barcelona reached their peaks again?

If we focus on the most important markets, Madrid and Barcelona, we see that in the city of Barcelona, prices reached their peak in mid-2019, at €4,162 per square metre; there, average house prices fell in the last quarter of 2019 to reach €4,131 per square metre. In addition, the volume of transactions has decreased progressively over the last two years – just like in 2008, when prices reached their peak, the number of transactions began to decrease two years earlier.

Furthermore, sales values ​​in Madrid also seem to have peaked, regardless of the health crisis. There, house prices reached €3,362 per square metre during the last quarter of 2019, which was lower than those seen in the previous quarter. Also, the number of transactions registered in 2019 reflected a decrease of 8% compared with 2018.

As we wait for the Ministry of Development to publish data for the first quarter of 2020, and based on the data that does exist, “we observe a slight contraction in transaction values ​​in the main urban centres, which could indicate (leaving aside the consequences of the crisis) a hypothetical fall in prices or at least the stabilisation of them”, says Ramudo.

Luxury House Prices to Fall by 4% in Madrid and by 2.5% in the Rest of the World

The experts at Knight Frank predict that the relaxation of travel and airline restrictions will be essential for the recovery of the prime property market, but they are not expected to return to their previous levels until 2021.

Mobility restrictions are affecting the price of luxury homes, which are expected to drop by 4% in Madrid and by 3% around the world, on average.

In an online presentation on Tuesday, several experts from the consulting firm Knight Frank shared their first forecasts about the impact of Covid-19 on the prime residential market in 20 globally important cities.

The Bank of Spain Warns of House Price Decreases and Fewer Sales After Coronavirus

The supervisory body has also warned about the risk of payment defaults by families and companies, although there is a bank ‘cushion’ of €93 billion to cover a default rate of 13%.

The Bank of Spain’s spring Financial Stability Report warns that the impact of the health crisis on the real estate market will be significant, “at least in the short term”. It recalls that the market was already in a phase of deceleration, in terms of both activity and transactions, as well as prices, after the notable expansion of recent years.

However, it offers some hope by stating that the degree of recovery will depend on the extent to which the economic and financial effects of this upheaval persist. It also underlines that house sales contracted in 2019 in both the new build and, to a greater extent, second-hand housing segment. For its part, the growth in average house prices moderated, although the “high degree of geographic heterogeneity” continued.

House Prices Will Take Between Two and Seven Years to Recover to their 2019 Levels

Before this crisis, we expected a return to the highest ever house prices of 2008 during 2025. Now, that goal will be delayed by between two and five years, according to the consultancy AIS Group.

House prices will take between two and seven years to recover the levels recorded in 2019 due to the impact of coronavirus, according to a report by the AIS Group. The consultancy has made these forecasts based on two possible scenarios: one expected, in line with an 8% drop in GDP, but with a rapid recovery; and another more pessimistic, based on a “slower” recovery.

In the scenario prior to the Covid-19 crisis, we expected the recovery of house prices to continue, after the falls of 2008 and 2013. However, AIS considers that the emergence of the coronavirus and the economic impact of the measures to contain the pandemic will make prices fall again.

House Prices Will Fall by 6% and House Sales by 35% in 2020, According to Bankinter

Home-buying decisions will be postponed for between 6 and 12 months, and some of the demand will disappear for longer, resulting in a temporary imbalance between supply and demand.

House sales will amount to around 326,000 units by the end of this year, levels similar to the minimums registered between 2012 and 2014, according to a study carried out by analysts at Bankinter. That figure represents a 35% drop in operations compared to the number registered last year, when more than half a million homes were sold.

In its report, Bankinter also predicts a 6% fall in house prices this year, a figure that coincides with the estimates published by the Swiss bank UBS. However, both entities believe that the impact on real estate will be temporary. “Spain is facing an unprecedented economic shock, which we hope will be temporary,” said the bank led by María Dolores Dancausa.

Rental Prices Rose by 6.5% in Q1, the Largest Increase in 14 Years

The price of rental housing rose by 6.5% during the first quarter of the year, the largest increase in that period for 14 years. In just one year, rental prices have increased by 9.9%.

In Spain, the price of rental housing rose by 6.5% in the first quarter of the year, the largest increase recorded in this period in the 14 years since records began, according to data from Fotocasa.

In just one year, rental prices have increased by 9.9%, taking the average price in March to €10.80 per square meter per month. That figure is 40% and 35% lower than the averages for Barcelona and Madrid, respectively.

Covid-19 Puts at Risk up to 100,000 House Sale Operations in 2020

The effects of the pandemic on the market will be most significant during the second and third quarters, according to Although the portal predicts that house prices will not fall by as much as they did in 2009.

The shutdown of the real estate market due to the Covid-19 crisis is putting between 50,000 and 100,000 operations at risk. The real estate portal has proposed two different scenarios depending on how the health crisis in Spain progresses. If the recovery of the market after lockdown is rapid, the total volume of operations will amount to around 450,000 in 2020, which would represent a drop of 10% compared to the 500,000 recorded in 2019. If the recovery is slower, then the volume of operations could drop to around 400,000, or 20% less.

The real estate portal and the online financial institution have conducted analysis of the possible scenarios for the sector following the impact of the coronavirus, whose effects on the markets are expected to be most significant during the second and third quarters: “House prices are not going to collapse like they did in 2009, but their evolution will be linked to that of GDP, and so we expect to see declines of between 6.5%-13.5% after lockdown”.

House Prices Will Fall by 6% This Year and Will Recover in 2021, according to UBS

The Swiss bank believes that prices will fall by less in large cities. It estimates that homes in Madrid, Barcelona and the País Vasco will lose only between 3% and 5% of their value.

The Spanish residential market will suffer a price decrease of 6% in 2020, due to rising unemployment, according to forecasts from UBS. In a report on the real estate market, the Swiss bank explains that it expects house prices to fall “by less in big cities and by more in secondary locations” and that the recovery to pre-coronavirus crisis levels will happen between 2021 and 2022.

According to the investment bank, prices in the Spanish property market – which suffered a sharp decline between 2009 to 2013 and an uneven recovery since 2014 – are slightly above fair value. This means that the falls may not to be as significant as they were last time around. Furthermore, UBS notes that prices outside of the largest cities and best coastal areas have experienced limited significant variations in the last cycle.

House Sales Rose by 0.6% at the End of 2019, after 2 Quarters of Decreases

The growth in prices per square metre slowed down nationwide and decreased in five regions, in particular, in Castilla-La Mancha (-10.4%). The highest increases were registered in La Rioja (22.8%), the Balearic Islands (11.4%) and Extremadura (10.6%).

The sale and purchase of homes recorded a nationwide increase of 0.6% year-on-year in the last quarter of 2019, reversing the trend seen in the previous two quarters, according to statistics published on Monday by the General College of Notaries.

By region, the Canary Islands experienced the greatest increase: there, sales rose by 13.4% in the last quarter of 2019. Five other autonomous regions registered increases of between 5% and 10%, whilst four regions saw more moderate increases, ranging between 0.5% and 3.4%, according to data published on Monday by the Notaries’ Statistical Information Centre.

New and Second-Hand House Prices in China Rise Slightly post-Coronavirus

The price of new homes in China rose slightly in March, by 0.13% on average, buoyed by pent-up demand following the coronavirus.

The price of new homes in 70 large cities across China rose by an average of 0.13% in March compared to February, according to data from China’s National Bureau of Statistics, released after the re-opening of the economy post-coronavirus. The data excludes state-subsidised housing but have sparked enormous global interest as they are the first figures available from the first country to overcome the pandemic.

In January and February, when Covid-19 was at its peak in the Asian country, transactions and the launch of new projects were slowed by an average of between 15% and 40%, as reported by Brainsrenews. In this way, property sales fell by 35.9% compared to the same period a year earlier, whilst the surface area of ​​assets sold decreased by 39.9%.