The price of housing and sales are on the rise despite the fact that our country continues to suffer after almost two years the impact of the pandemic. This positive evolution that the sector registers every month, added to the bubble alert that is being generated in other European countries, have also set off alarms in Spain. But is this fear justified? Are there really arguments that show that the real estate sector is once again on the verge of a bubble?
Before solving this question, it is important to understand how the real estate sector works and what factors influence its development. In this sense, Carmen Panadero, president of WIRES, points out that the sector has a “cyclical behavior, which is governed by periods of ups and downs that respond to many factors: some exogenous and others endogenous to it “.
The directive specifies that the exogenous factors are, among others: the price of money (interest rates), indicators such as unemployment or inflation (which changes the purchasing power of families and confidence indices) or the demographic indices of the cities or countries. “Among the endogenous factors are the price and availability of finalist land, construction prices or the legal and regulatory framework (mainly the stability) of the investment,” says Panadero.
Therefore, despite the fact that most of the population only looks at house prices to assess whether we are entering a new real estate bubble, the truth is that It is necessary to analyze what have been the factors that have influenced the formation of this price and also take care of another series of parameters that affect the activity of the sector.
In this sense, Julián Salcedo, president of the Forum of Real Estate Economists, explains that it is considered that there is a bubble in an asset when “its price suffers a prolonged and abnormal rise, which causes said price to move further and further away from its real or intrinsic value “.
“Most of the time, price increases respond to speculative phenomena, In such a way that investors anticipate their purchase decisions for that particular asset in the expectation that its price will continue to rise rapidly, and thus, anticipating, they obtain an immediate profit, creating an upward spiral: as investors anticipate prices accelerate its rise even more, until the asset in question has reached an irrationally high price that triggers the opposite effect: it must be disposed of quickly before its price falls suddenly and disproportionately, puncturing the bubble “, specifies Salcedo .
According to the experts consulted by this means, Spain is not now in a phase similar to that experienced before the 2008 crisis Y “the operations that are being carried out are not speculative”, points out Juan Antonio Gómez-Pintado, president of APCEspaña, who assures that “there is no risk in Spain of a real estate bubble”. Thus, the manager states that one of the keys to affirming this is that currently “the disposable income that families allocate to the purchase of a home on average in Spain is at 32%, when in bubble times it was above the 44%. Therefore, it is below the recommended 35% “.
Juan Carlos Higueras (EAE Business School): “Financial entities, who learned their lesson, are no longer granting credit to just anyone or for the purchase of any asset”
Likewise, Juan Carlos Higueras, economic analyst and professor at EAE Business School, assures that “the upturn in prices and sales operations is not reaching the levels of the 2008 crisis, since they are operations limited to certain geographical areas and do not entail irrational price increases in a generalized way as happened in those times. “
In addition, Higueras focuses on banking, which is another of the key factors at the half hour if we go towards a bubble, and points out that “financial institutions, who learned their lesson, are no longer granting credit to anyone or to the purchase of any asset. In fact, the vulnerabilities shown by banks in 2007 for mortgage loans are not similar to the current ones, although it is true that they will increase as the mortgage grants do. ”
In addition, it highlights that appraisals “are not overvaluing the price of real estate and financial entities generally do not grant more than 80% of said appraisal value, unlike in the previous bubble where up to 120% of the value of the home was granted in mortgage credit. Therefore, the volume of mortgage operations remains at healthy levels. “
Why are prices rising?
If speculation in the sector is ruled out, what are then the reasons why housing continues to rise in price in Spain?
As explained by Consuelo Villanueva, director of Institutions and Large Accounts at the Appraisal Society, there is an increase in the demand for housing (especially replacement), which is added to the “growth of the savings rate in families after the episodes of confinement and low interest rates. “All this” could be pushing prices up, without reaching the levels of other foreign countries. “In addition, Villanueva points out that” in the case of new housing, we must take into account the lack of labor and the increase in the price of construction materials. “
On the other hand, the expert from the Appraisal Society assures that in fact they are observing that there are other aspects that could “be causing a containment of prices” such as “precarious wages, the high rate of youth unemployment ?? an aspect that limits their ability to save and access to financing for the purchase of their first home ??, the absorption of ERTEs and EREs, ICO loans pending payment and the incessant reduction in rental prices, which would discourage investors from potential lower profitability. “
Antonio de la Fuente (Colliers): “This year’s visas barely represent 12% of the 2006 activity.”
On the other hand, Antonio de la Fuente, Managing Director of Corporate Finance and head of Colliers’ residential development business, puts into context the figures currently handled by the sector, which have nothing to do with those of 2007.
“It is important to highlight that the expected number of housing visas, which is 101,000 for this year, barely represents 12% of the activity in 2006, when 865,000 homes were approved in the middle of the real estate bubble,” says De la Source, which points out that this joins a strong and current absorption rates that are above 80%.
Likewise, we find a “healthy average debt ratio of 64.8% with only 8.8% of mortgages with an LTV above 80% and with mortgage effort rates for the purchase below 35%, and reasonably contained prices, it allows us to categorically rule out that we may find ourselves in another real estate bubble like the one in 2007 “.
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