What is happening with housing these days causes between shock and stupor. Whoever does not hurry is left without a home, whether to buy or rent. Euphoria, joy, debauchery or frenzy. No matter what adjective is used, they all illustrate what is happening in this market. If in recent weeks you have tried to buy or rent a house, you already know what these lines are about. Housing is overflowing with clients and prices, to the point that in some cities levels not seen since the bubble are being reached. And, what is worse: prices are going to continue to rise in the short term.
Part by part. The rent takes your breath away again. After 13 months of consecutive declines, in the first quarter of the year rents rose by 0.8% year-on-year, according to Fotocasa. And already “we are 1% away from reaching the maximum levels of 2007”, says María Matos, Director of Studies for the real estate portal. The Community of Madrid, for example, is 1.10 euros away from setting a record again. The expert anticipates that the data for May, which will be published shortly, already reflect levels never seen before.
Despite these runaway incomes, a motto reigns: the first one who arrives, keeps it. María, 44, rented her apartment in Madrid a month ago and it was not easy at all. “I found that the market was moving very fast and that some flats were blown up in a matter of hours or a few days. People went to the visits with the last three pay slips in hand”. You have to make a decision before you walk out the door. “You have no room to think about it,” she adds. There is no supply for so much demand, an imbalance that companies in the sector attribute to the Government’s protectionist measures, such as the 2% limit to update rents, now extended for three more months.
The sale of houses does not fall short. Whoever can buy —certainly not young people under 35— is buying, and that prices, in the case of second-hand, are at 2010 levels, according to the INE. Despite the Government’s attempts to encourage leasing, for the time being Spain is reaffirming its roots: it is a country of owners. In March alone, 59,272 homes were sold, 25.6% more than in the same month of the previous year. It’s the best March since the bubble.
In the second-hand house market “a contagion effect is taking place, the one that occurs when they tell you that the last bike is left,” explains Jesús Duque, vice president of Alfa Inmobiliaria. “A lot of people want to buy. Realize that some mortgaged last month at a fixed 1.5%, when inflation in May rose by 8.7%, “adds the agent. Every day, Duque sees how some flats are placed in a week. “Everything is sold second-hand and the worst quality, the ground floor or interior, are being renovated to put them up for rent,” says Matos. Here too the imbalance between supply and demand is growing, and that pushes prices up, an oil stain that is spreading: Madrid, Catalonia, the Basque Country, Andalusia, the Valencian Community…
He knows in depth all the sides of the coin.
“It’s really crazy, there are people who on the day of the visit make the reservation, an immediate transfer or the deposit is signed. They even buy houses without visiting the flat”, explains María Matos. The analyst realizes that these situations did not even occur in the times of the bubble, where there was much more supply, especially new. There were plenty of cranes.
No new construction
Now there are very few new promotions. “Supply does not satisfy demand in any way. A large percentage of new housing is being sold off-plan”, says Daniel Cuervo, general secretary of APCSpain. For this reason, in the absence of new flats, demand is shifting towards used houses, which already account for 80% of transactions.
The little new supply that comes onto the market is through the roof. The data differs depending on the source. According to the INE, prices are 8.1% above the maximum of 2008. According to the Ministry of Transport, the price of housing less than five years old is 7.3% below the maximum of 2010.
In the short term, they will continue to rise. The culprit is rising construction costs. Some promoters have had to stop the works in progress or slow down the pace of the work, and others have postponed the launch of new developments to avoid having to apply exorbitant increases. Cuervo insists that the prices are not going up in the promotions that are already underway, because most of them are sold out. In those that go on the market, the increases are between 4% and 6%. In short, apartments are bought as if they were given away. The causes of this rush to buy a home are several. One of them is the fear of the progressive rise in interest rates and the rise in mortgage prices. Who thought to buy next year is advancing the decision. This is valid for the used house and not for the new one, which takes 18 months to build.
Another reason is oversaving. “Households are wondering where to put that important savings cushion inherited from the pandemic, because with the rise in inflation it loses value,” says Raymond Torres, director of the Economic Situation at Funcas. Housing is one of the few investment assets that still offers a good return. At the end of 2021 it was placed again at 10% per year (rent plus price variation), according to the Bank of Spain.
José García Montalvo, Professor of Economics at Pompeu Fabra University, considers that in Spain what has already happened in other countries at the end of 2021 is past. “We are running late”. And he gives as an example the price increases in Greece (10%), the Netherlands (18.7%), Germany (12%) or the United States (20%). “We are seeing the transfer effect of purchases that were not made in 2020 and 2021 due to the pandemic,” he points out. García Montalvo once again places housing as a refuge value for families in the face of inflation pressure: “They seek to protect their assets and get profitability from them.”
José Manuel Corrales, professor of Economics and Business at the European University, believes that the mismatch between supply and demand “is fueling a dangerous inflationary dynamic that is causing families to lose purchasing power.” The more you buy, the more prices go up. And he explains the reason for the debauchery: “A rent costs 1,000 euros a month and a 30-year mortgage can cost you 800; that many temporary contracts have become indefinite is fueling the purchase”.
The big question is how long will prices go up? “Until interest rates collide with the effort indicators and break the upward cycle,” Torres believes. At the moment, this effort stands at 33.4%, according to the Bank of Spain, because interest is still low and employment is growing. Cuervo, who asks for a bit of good sense, places the maximum limit at 35%. In renting, this effort is already overflowing: 35.9% of tenants dedicated more than 40% of their disposable income to housing in 2020. At the moment, the experts consulted do not speak of a bubble, but of overheating. García Montalvo believes that there is “a psychological effect of fear of losing the house you want to buy.” Torres calls it “anticipation overheating.”