There is a premise in the economic world that says that when the United States sneezes, the world gets cold. The US real estate market has begun to change and it looks rough for the world’s leading economy: last July the price of housing fell for the first time in 10 years and the confidence of developers has already registered nine months of consecutive falls. Both the construction of houses and sales have suffered a brake during the summer after the fall in demand due to the increase in mortgage rates and uncertainty.
But the current situation is very different from the housing in the years 2007 and 2008, when there was a crisis derived from subprime mortgage loans. Now, neither credits are granted indiscriminately nor is there a high level of non-compliance with them.
We are witnessing an economic adjustment in the American country, but the strength of the real estate market is almost historical, as stated by Ricardo Rodríguez, director of Coldwell Banker Boston. Can we extrapolate this situation to the Spanish market? Experts say that what is happening in the US is applicable to Spain, but with nuances.
How is the real estate market in the US and in Spain
The Federal Reserve has put a quick end to its fight to curb inflation by placing the price of money in a range between 3% and 3.25%, the highest level in the last 14 years.
The effect it has had is that mortgage interest rates have doubled this year, scaring away many buyers and causing sales to plummet. Specifically, the average interest rate on mortgages rose above 6% for the first time since 2008 and is now more than double the level of a year ago, according to data from the Mortgage Bankers Association (MBA).
Data that has accelerated the change in the real estate cycle and has put an end to the bull run for housing in the American country. House prices in the United States have begun to fall for the first time in a decade.
According to the S&P CoreLogic Case-Shiller index, the price in the 20 largest cities in the US fell 0.44% month-on-month in July, the first drop since March 2012. The last real estate slump ended in 2012, giving way to 10 years of price rises, capped off by a two-year buying spree.
The boom in moving houses after the pandemic is slowing as mortgage rates rise. Experts say that there will not be a fall in real estate as in 2008, but a decline is being considered, and even more so if there is a recession.
With these indicators that come from the world’s leading economy, the professionals consulted by idealista/news assure that what is happening there is logical and expected and also applicable to all markets, including the Spanish one. Also, add inflation.
Today in Spain the 12-month Euribor is around 2%, which with the differential applied by the bank can currently reach 3%, as Luis Corral, CEO of Foro Consultores points out. In fact, the average mortgage rate closed July at 2.5%, according to the INE, far from the 6% in the US.
Corral assures that the housing market in our country continues to show dynamism. “We come from a summer with good sales, both in first and second homes. Moreover, as demand is high and supply is scarce, especially in new housing, prices are high, even overvalued, both in first and second homes”, he adds.
But… the latest ECB rate hike of 75 basis points, to 1.25%, together with runaway inflation, the energy crisis and the increase in the price of new construction are planning on the recovery of housing after Covid .
From the real estate company Coldwell Banker they recall that the official data reflect that the rise in interest rates and the tightening of the conditions imposed by the bank are holding back the signing of mortgages in Spain. In fact, in July (the last month available) 35,918 mortgages were signed, 16% less than in June and just 2.3% more year-on-year. This data clearly shows the slowdown in growth in mortgage lending.
What will happen to real estate in Spain in the coming months
There are more and more voices warning of a recession in Spain or at least storm clouds in the housing market. Despite the fact that sales and property prices have held up despite the uncertainty caused by the war in Ukraine and record levels of inflation, experts believe that the change in the real estate cycle is on the way out.
Luis Corral warns that, if we enter a recession, it is normal for jobs to be lost and the market will accuse there. Even plaintiffs with purchasing power will opt for prudential economics. As we get closer to the American mortgage rates, the demand will decrease. Regarding prices, if the situation worsens, they will tend to correct themselves.
“If rates rise and inflation remains, this subtracts available resources from buyers, leverage capacity decreases and affects demand,” says Corral.
Regarding the price of housing, Jesús Gil Marín, CEO of the Gilmar real estate company, estimates that the rise or fall in price is absolutely relative. “The price at which a home is sold depends on the area in which it is located, the supply and demand associated with that area. As an example, not many days ago we were showing a buyer a penthouse in Madrid that costs around 20,000 euros per m2”, he says.
In his opinion, the type of home that will suffer the most from the coming economic downturn is the one that comes out at a sale price of between 200,000 and 300,000 euros. “The increase in prices and the difficulties in receiving construction materials would clearly affect the ‘lower’ profile. Buyers or investors with greater economic potential will not be so affected”, says Gil Marín.
In the US, buyer affordability has gotten worse. François Carriere Pastor, CEO of Coldwell Banker Spain, points out that “the rise in rates, double-digit inflation and the still high sales prices do not allow citizens to consider buying a home as happily as before”.
Finally, in the American market there is talk of an unsustainable overvaluation of housing. The CEO of Coldwell Banker affirms that they have had selling clients who have themselves proposed an adjustment in the price of the property, aware of the market situation.
Source: idealista.com
