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Mortgages, sales and even the price of housing rises: what is happening in the real estate sector?

What is happening in the real estate sector? Lately it is all encouraging data: in June, mortgages registered the greatest rise in the last eight years, the purchases and sales put an end to 10 months of falls… And in September, an ultimate piece of data: the price of housing is increasing for the first time in six years. Does this mean that the sector has left the crisis behind?

  • This is indicated by the data of the INE, of the Association of Registrars…
  • But can we talk about recovery? An in-depth analysis invites us to be cautious
  • The improvement is still very weak and, above all, unequal: there is a need to be cautious

What is happening in the real estate sector? Lately it is all encouraging data: in June, mortgages registered the greatest rise in the last eight years, the purchases and sales put an end to 10 months of falls… And in September, an ultimate piece of data: the price of housing is increasing for the first time in six years. Does this mean that the sector has left the crisis behind?

Although the optimism is growing about the recovery of the Spanish real estate market, which experienced one of its worst fiscal years in 2013, an in-depth analysis of the figures invites us to be prudent and to maintain caution.

“We can’t forget that we have come from historic lows and that at any moment it was logical that an upturn would occur”, says the director of the board of studies of pisos.com, Manuel Gandarias. It must also not be forgotten that statistics deal with averages and that, evidently, the state of health of the sector will be different on the coast than in the inland, and also in one community than in another.

The problem is that almost nobody is brave enough to say that the levels are enough to ensure that the sector, at the end of the day, has recovered. (The following graphs are those of the Registrars and here, their report).

First, the price

According to the data that has been published today by the Association of Property Registrars, the price of housing increased by 1% in the second quarter of 2014 with respect to the same period of the last fiscal year. The first rise in the last six years is assumed. Now, what is behind this?

The experts from the portal lider in Spain, idealista, are trying to find a reason: “The purchases and sales that are happening belong principally to the highest part of the market, probably due to the high demands of the banks at the time of granting mortgages, which makes the sale of more economical housing difficult”. In this sense, “we could be before a paradox that the average price is rising only because the medium/high price housing is being sold, whilst the rest of the market continues to have to adjust prices in order to close transactions”.

Although everything seems to indicate that the end of the intense downward process of the price of housing is occurring, the registrars state on their behalf that, “the current price levels seem interesting for those with a purchasing capacity”.

The high and growing demand from foreigners for housing in the coastal areas is producing this better behaviour and leaving behind the generalized descending trend. In fact, the purchasing of housing on behalf of foreigners continues to mark maximum highs.

Price index of the repeatedly sold housing. Trend of the year-on-year rates of change (%)

 Price index of the repeatedly sold housing. Trend of the year-on-year rates of change (%)

Price index of the repeatedly sold housing. Trend of the year-on-year rates of change (%)

With this said, from the highest prices reached in the middle of 2007, currently the price of housing is accumulating an average decrease of around -32%.

The scarce development of new construction works during the downward cycle has meant that practically the only option for the purchasing of new housing has been the construction during the upward cycle and that currently pending sale. A good part of these houses have slipped into the hands of the financial entities, as they have been progressively sold, especially through an intense policy of the reduction of prices and guaranteed financing.

Are purchases and sales really rising?

In June, and according to data from the National Institute of Statistics (INE), the purchases and sales of housing grew by 8.8% with respect to the same month of 2013. This year-on-year upturn was the fourth consecutive behind those of March (22%), April (5%) and May (5.4%) and it allowed to leave behind 10 consecutive months of falls.

Although published by the INE, the figures correspond to purchases and sales registered in the property registrars proceeding from public deeds made in the months prior to that of reference.

Good data? Yes, but we must take it with caution. Firstly because in a monthly rate (June over May) the purchases and sales of housing fell by 7.3%. Furthermore, in the month of June with respect to the same month of 2012 a total of 20,076 transactions were registered, basically thanks to the momentum of the second-hand market.

 

NUMBER OF REGISTERED PURCHASES AND SALES OF HOUSING. 2ND QUARTER 2014

NUMBER OF REGISTERED PURCHASES AND SALES OF HOUSING. 2ND QUARTER 2014

NUMBER OF REGISTERED PURCHASES AND SALES OF HOUSING. 2ND QUARTER 2014

The data, although more positive than that of the last year (23,977) is even further from the 66,670 registered in the same month in 2007, or the 46,533 of 2008. It is true that the economic situation has changed a lot since then and the majority of analysts consider that for the market to be healthy we shouldn’t return to these figures.

In any case, the year-on-year growth in the purchases and sales of housing in June 2014 was due to the 17.4% increase in the purchases and sales of second-hand flats, which reached 16,257 transactions. To the contrary, the purchases and sales of new housing fell by 3% in a year-on-year rate, to 9,819 transactions.

Beatriz Toribio, the person responsible for the Studies of the leading Spanish site Fotocasa considers that it is too soon to speak about the end of the adjustment: “The recovery of the real estate market will be slow and moderate, given that although the purchases and sales are slightly increasing and the prices are slowing down their fall, credit continues to be very limited and the situation of the labour market is still very complicated, which makes the demand for housing on behalf of private individuals difficult”.

On their behalf, idealista.com alerts that “the month-on-month fall of 7.3% and the fact that less housing has been sold which should never be sufficient indicators to remain prudent and make the owners see that although credit is seeming to return to flow, the excess of optimism, or the thought that prices have already hit rock bottom, could suppose a risk for the closing of transactions. This is what Fernando Encinar indicates, its manager of studies“.

Trend in the number of quarterly purchases and sales of housing. National total

Trend in the number of quarterly purchases and sales of housing. National total

Trend in the number of quarterly purchases and sales of housing. National total

 

And the mortgages?

The signing of new mortgages for the purchase of housing increased by 19% in June in a year-on-year rate, the second time that it has risen in four years, after the small of upturn of 2% registered in March.

Specifically, the number of new mortgages constituted for the acquisition of housing was at 17,137. This figure was far from 56,000 that were signed 4 years ago for example. Furthermore, in comparison with the previous month this figure supposes a decrease of 4.6%.

Furthermore, a slight increase occurred in the differentials applied by the financial entities. However, we will need to wait to see if it only concerns an isolated rise in the trend towards the lowering in the differentials that have been appearing in the past month.

It is certain that the bank is becoming less demanding: the average type of loans granted in June rose by 3.88%, the lowest level in this month since the year of 2006. But there is a very important difference, then the Euribor was around 3.4% and now it is at 0.513%, which has multiplied the margin of the bank’s credit by seven.

Ultimately, despite some encouragements, the latest figures of the Spanish GDP show that investment in housing was down by 0.4%, accumulating 26 consecutive quarters of falls. In order to find the last positive rate in this category of data you have to go back to the first quarter of 2007.

And so, we will have to wait some months more in order to see if the latest data truly indicates a change in the trend in the sector.

 

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