Article / 09 November 2015 at 15:28 GMT

Spanish housing has hit bottom (and we called it!)

  • Spanish economy has gone from strength to strength in 2015
  • Residential property prices climb higher on robust recovery
  • Transactions on the rise, but mortgage values remain stubbornly flat

Madrid skyline

The sun is shining on the Spanish housing market, just as we said 
it would one year ago today. Photo: iStock

By Mads Koefoed

A year ago today, we offered the opinion that there were encouraging signs of a trough being formed in the Spanish housing market. We ended our outlook with the comment that "the Spanish housing sector will remain in distress for years to come and the recovery is likely to be very protracted with a large overhang of supply... but the bottom is in!" 

Considering that today marks the one-year anniversary of the article, it is only fitting that we revisit this call now.

Since our housing call was published, the Spanish economy has gone from strength to strength with economic growth accelerating to 3.4% (year-over-year) in Q3 from 1.6% four quarters earlier; full-year growth is likely to top 3% following 1.4% last year and minus 1.7% in 2013. 

The unemployment rate, too, has started to decline – to 21.6% in September from a peak of 26.3% in February 2013 (though there is a long way to go yet before the labour market has normalised). 

With the progress in the broader economy and the very loose monetary policy conducted by the European Central Bank in mind, how has the Spanish property market fared?

Spanish and US housing prices

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Source: Saxo Bank 

According to the TINSA index, Spanish house prices declined by 42.6% between the top in December 2007 and February of this year, which (so far!) marks the low point. 

Prices did climb to their highest level in a year in September, but overall the development over the last 12 months has been one of stabilisation rather than a quick rebound – similar to what we saw in the US when prices moved sideways in 2010-2012. 

Another measure of residential property prices in Spain is slightly more upbeat. Following stagnation throughout most of 2014, the index has now slowly started to climb higher and is currently up 4% (y/y) through Q2.

Building permits
Prices are just one part of the property market equation, however. In the US, activity began to pick up before prices and this too is the case in Spain. 

Building permits, which imploded like nothing else during the downturn, have also started to rise again, posting 19% annual growth on a 12-month smoothed basis. Mind you, despite this uptick, activity remains more than 90% lower than the pre-crisis peak.

Transactions, too, have moved off the lows since bottoming out in early-to-mid 2014 climbing close to 20% y/y. Similar growth rates can also be seen in the total capital loaned and the number of mortgages. 

The average mortgage (value) on a property has been more sticky, with growth in the single digits during the last 12 months.

Lastly, delinquencies have come down quite a bit since peaking in January 2014, declining by 21% y/y through August, and down 26% from the peak. Delinquencies as a proportion of total loans fell to 11% in August from 13.2% a year ago and 13.6% at the peak in December 2013.

The sum of these observations is that the Spanish housing market is recovering as laid out in our outlook one year ago. Activity is rising while prices are evolving exactly as tepidly as expected. 

Considering the very large overhang of supply still present, it is unlikely that we will see a sharp rebound in prices anytime soon. To reuse the quote at the top: "the Spanish housing sector will remain in distress for years to come and the recovery is likely to be very protracted with a large overhang of supply... but the bottom is in!"

Madrid apartments

Steady as she goes: the Spanish property market's recovery has not been dramatic, 
but the fundamentals are tilting determinedly skyward. Photo: iStock

— Edited by Michael McKenna

Mads Koefoed is head of macro strategy at Saxo Bank


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