The great real estate bubble and boom, the hangover that followed, devastated the economy in Spain and changed the paradigm of the real estate industry. But almost 15 years later, the situation is completely different. The main managers of the sector argue that they have become more professional, the risks they take have decreased and the demand for housing is strong.
What economic indicators show that we are not facing a housing bubble?
Prices have not increased that much.
Between 1999 and 2007, living place In Spain it increased by an average of 12.3% per year. According to CaixaBank Research, although there has been significant growth in recent months, this is not comparable to the current situation, as the average from 2014 to 2022 was 2.3% per year.
Increases in the last ten years They did not serve to recover pre-crisis prices at the national level.. Prices are 8% below what they were before the bubble burst, according to the Idealista real estate portal. Other sources, in this case the Tinsa appraiser, place prices 18.7% below their 2007 all-time high.
Housing affordability has tightened, but not as much as in the ‘boom’ years. Housing prices by family income have increased 5.4 times during the bubble years and have increased 1.5 times in the last eight years.
The sector does not produce housing
One point of difference between the pre-bubble housing market situation and the current situation is the difference in the number of homes built each year. Between 1999 and 2007, 5.65 million new residences were approved for construction. This meant 1.6 houses for every house created in Spain. This figure is much lower today: 730,000 homes were approved between 2014 and 2022, representing 0.9 for every home created.
In the previous cycle, the crisis was caused by an oversupply of newly built homes. However, at the moment problems are in demand: Less is built than necessary. For example, two of the major developers in the country, Neinor Homes and Aedas Homes, have already reserved about 70% of the apartments they will deliver in 2023, slightly less than in 2024. With data for the third quarter of 2022, the four largest development companies in the country had 18,000 homes under construction, of which more than 1,000 13,000 people already had a buyer.
The biggest difference between pre-2008 housing and now is its little importance in the new construction market. For example, the first statistics given by the National Institute of Statistics in January 2007, 40% of the delivered apartments are zero. In 2007 and 2008, 20,000 or more than 25,000 newly built homes were registered each month; In recent years, this figure does not exceed 10,000.
Household indebtedness decreased
Another difference between the great crisis of the 21st century and the current economic situation is indebtedness. According to CaixaBank Research, between 1999 and 2007, household debt increased by 40% relative to Spain’s gross domestic product. Between 2014-2022, it was reduced by 20%.. at least partially, Debt transferred to the state. Leverage in Spain in the first quarter of 2008 was 35% of GDP compared to the current level of over 110%.
While the number of housing loans granted in 2007 exceeded 1.2 million, it did not reach half a million in 2022. In the year before the bubble burst, 1.75 housing loans were issued for each sale, compared to only 0.78 housing loans last year. that means Two out of ten people who buy a house buy a house without the need for a loan..
The amount of these loans is also important. In the previous cycle, loans were given above the purchase value. This was discontinued shortly after the balloon burst. Where previously around 15% of mortgages contained an amount exceeding 80% of the transaction value, this ratio has been reduced to 9%.. In addition, these loans with a very high debt ratio are designed for young people who have a stable income but do not have enough savings to buy or can provide substantial guarantees of solvency.
The method of borrowing is also important: Before the crisis, only 4% of mortgages were signed at a flat rate, and in recent years that number has skyrocketed to 66%.. This is mainly due to the oasis of ‘free money’ in recent years, which has allowed many families to get financing to buy a very cheap flat. This is good news because it makes them less vulnerable to changes in central banks’ monetary policy as they are now.
healthy companies
Emerging from the heat of the recovery in the Spanish real estate sector, companies took less risk on debt than before. Two major real estate companies located in Ibex-35, Merlin Properties and Colonial have low indebtedness: 32.7% and 36.9% respectively, relates to the value of its assets. Developers tasked with purchasing land to then build houses are less leveraged, including: Aedas Homes owes 25.4%, Neinor Homes 19% and Metrovacesa 9.4%.
One of the changes in the development sector is the cutting off of the financing faucet. In the past, banks used to lend money even to buy land. Now, getting a developer credit is much harder: land owned, pre-sale of high number of prospective homes and obtaining a work permit.
Moreover, Large real estate companies and REITs have sophisticated financing structures.. One of the reasons for bankruptcies in the 2008-2012 period was that they financed long-term investments with short-term policies. Not now. Merlin and Colonial have major bond issuances with highly controlled maturity dates.