Real Estate

Will house prices fall in Spain in 2020?

The housing market in Spain has witnessed consecutive sharp rises since 2014 and is preparing for a break in the trend. This is the forecast shared by the consensus of experts in the real estate sector , which insists that if anything is to characterise 2020, it is moderation and caution. Let’s have a look at what the experts have to say.

The economic situation

The judgements by experts are closely related to the economic slowdown and to the uncertainty generated by the housing measures that the recently formed coalition government between the PSOE (the Spanish socialist party) and the Unidos Podemos (another left-wing Spanish party), as well as the autonomous regions and large city councils, may soon implement. 

In this scenario, the consensus forecasts an average national housing price increase of between 3% and 4%, compared with a 4.5% increase in 2019 and 5.4% in 2018. However, experts also insist that the evolution will depend on the demand in each area.

“Obviously there will be areas with a flat performance such as some Spanish cities in Castile and León, Castile-La Mancha and Extremadura and, conversely, cities with higher demand, either because of tourism, business or both factors, as is the case in Madrid, Barcelona, Malaga, Valencia, the Balearic Islands and the Canary Islands, will have softer increases than in previous years. In any case, it is good news that the rise in housing prices is being adapted to the wage increases, which are at 2-2.5% nationally,” explains the Association of Developers and Builders in Spain (Asociación de Promotores Constructores de España – APCE).

Along the same line, Carlos Smerdou, the CEO of the real estate consultancy firm, Foro Consultores, thinks there will be movement in those areas where the economy is moving forward, which means that it will focus on big cities, where people have their jobs, and on bordering areas. “We will continue in a two-speed market, with cities with great economic activity and population reception, and others with less. And that will have an impact on real estate activity and will mean an adjustment in prices,” he explains.

Smerdou also argues that the moderation in housing prices will respond to other factors such as the slowdown in sales of new construction and the containment of land and construction costs. “As the pace of sales moderates, new projects will have to be adapted to the needs of the market and there will also be a tendency towards housing with less surface area to compensate for prices, while the costs of land and construction, which have been the great architects of recent price rises, are now also normalising”.

The residential sector should also not lose sight of “the evolution of the unemployment rate, which is still well above the European average (it is below 7%), and the demographic evolution of the country, since, from 2030, 30% of the population will be over 65, while today it is only 20%”, adds Sandra Daza, General Director of the consultancy firm Gesvalt. In her opinion, we are facing a year of moderate and even contained growth in the case of Madrid or Barcelona, although they will continue to be the regions that gain the most population.  

Occasional price drops could be on the horizon

While waiting to find out how the economy is evolving and what kind of measures are coming to the market from the public sector, the appraisers insist that 2020 is destined to be a year of price moderation. Sociedad de Tasación (The Valuation Society), for example, puts the rise in prices of new homes at 3.2%, while another valuation society, Tinsa, has analysed more than a hundred municipalities throughout the country and maintains that in 54% of them, housing will register price variations of less than 2% over the next 12 months.

Major changes in prices in areas such as the Costa del Sol also aren’t expected, where supply is stagnating in the face of a reduction in demand, or in other capitals such as Valencia. Other important areas such as Bilbao, San Sebastian, Seville or Malaga will also register limited increases or even occasional decreases, in order to be able to sell the existing stock.

A stage of adjustment

As Emiliano Bermúdez, deputy director general of the real estate agency, Donpiso, points out, “for the average price to rise by around 3% in the country as a whole, it is clear that the big cities, which are the economic hubs, are going to suffer this year and could see real price falls, and that the market will experience at least two years of slowdown, in line with the ratios and fundamentals we have been seeing recently”. 

For Jaime Cabrero Garcia, treasurer of the General Council of the Official Associations of Real Estate Agents in Spain (tesorero del Consejo General de los Colegios Oficiales de Agentes de la Propiedad Inmobiliaria de España), the overall performance of the housing market currently reflects symptoms of clear moderation and, with the context of economic slowdown and uncertainty in the political arena, it is logical that confidence suffers and with it, housing, especially if we consider that prices have been increasing more than wages for years. In addition, he insists that “real estate agencies are recording much less activity, which suggests that there does not seem to be good winds for housing”. Therefore, he concludes that it is difficult for the property market to behave as in previous years and that the price increase may well exceed the area of 3%.

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