Real estate data released by official sources indicate that Spain’s real estate market may be beginning to show first signs of a recovery. The implosion of the real estate industry that occurred six years ago trigged the worst recession even since Spain reverted to being a democracy. After having fallen by 40% in the last six years, real estate prices in Spain have risen by 0.8% in the second quarter of 2014. This is the first such increase since 2008.
A quarter-on-quarter comparison shows a rise of 1.7% in home prices, according to Spain’s National Statistics Institute. According to the General Council of Registrars, home property prices have fallen by 32% as compared to the peak levels of the real estate bubble and that prices are currently at levels that were last seen in 2003.
However, analysts from Moody’s and large property dealers in Spain have indicated that the recovery will be a long, drawn out, and painful affair. Analysts from Moody’s have opined that the overall improvement in the economy will not translate into an immediate and sustainable increase in house prices. The analysts point out that excess supply, high levels of unemployment, and a smaller buyer population will have an adverse impact on the recovery. The trend of declining house prices is expected to continue into 2016 as well.
Supply of new housing stock, which witnessed a 300% increase in the period from 2005 to 2009, has seen a reduction of just 13% in the period from 2009 to 2013. Comparison of mortgage data for the first half of 2014 with the first half of 2013 indicates a 13.7% reduction in number of mortgages granted. The number of mortgage loans granted is just 15% of the mortgages that were granted in the first six months of 2007, which was when the housing boom was at its peak.
According to the co-founder of Spain’s largest property website, their data indicates that prices are still down by around five percent and that the rise may be, in part, due to use of different methodologies to compile and analyze the data.
Data methodologies apart, the population of individuals aged between 25 to 35 years, which forms a significant component of the first-time home buyer population, is expected to decrease by 35% over the next ten years. The reduction in the number of buyers, as estimated by the National Statistics Institute will further complicate the recovery process.
Thirdly, Spain continues to suffer from high unemployment rates. The country stands second after Greece in the Euro Zone and has an unemployment rate of 24.5%. While this may be slightly better than peak levels of 26%, the rate of unemployment and decreasing quality of new jobs available to young people will negatively affect the pace of recovery in demand for houses.
Moody’s analysts predict occasional good news in the housing market but don’t anticipate a full-fledged and widespread recovery to take place anytime soon.