Interest rate rises are disrupting all investment dynamics, to the point that this year there has already been a trend unknown since 2008: the yield on the ten-year Spanish government bond is almost similar to that offered by the real estate assets. In this case, the indicators of Madrid real estate have been taken, as data that can be extrapolated to the whole of Spain.
Translated into the language of walking around the house, it is better to invest in public debt than to buy a flat to rent. Even simpler, house prices are going to fall.
The Singular Bank report 'Real Estate Outlook in Spain', advanced to La Vanguardia, anticipates that in the current inflation cycle, which runs from mid-2021 to the end of 2024, house prices will fall by 6% in Spain due, among other reasons, to its low relative profitability. If the increase in the CPI is accounted for, the home will have lost 14% in value in this period.
With data up to April 18, the yield on the Spanish bond was around 3.5%, after climbing from 0.5% since the ECB began raising interest rates in July last year. Instead, data from consultancies such as JLL or Cushman
In the world of investment, it is not just about achieving a high return percentage, but also about beating inflation and, above all, an asset as stable and conservative as government debt. If buying a flat or an office or premises is not going to yield a clearly higher return than something as conservative and predictable as public debt, why do it? Is it worth the risk for three tenths more of profitability?
This is the thesis on which Singular Bank experts, many of them from the UBS business sold in Spain, forecast the trend of price falls. They even venture to predict that in the province of Barcelona the decrease will also be 6% on average, compared to 8% in the rest of the Catalan provinces.
There are other elements that reinforce the forecasts of cheaper housing, offices and commercial premises. The increases in the Euribor, located on average in March at 3.64%, are already retracting the mortgage firm. According to the latest data from the INE, 35,900 subscribed in February, 2% less than a year earlier.
In addition, according to data from the Bank of Spain, the income effort that a new household must dedicate to paying the mortgage has risen to 36%, compared to 30% in 2019. This is a figure much lower than the peak of 48% that was it reached during the Great Recession, but it is above 33%, which for Singular Bank is the percentage above which individuals think twice about buying a home. "The price would have to fall by about 6% to bring the effort rate back to equilibrium," says Roberto Scholtes, Singular Bank's chief strategist.
The price declines should subside as soon as the ECB stops raising rates and starts lowering them. The report believes that the effective rate will not rise above 3.75% and that the Euribor will be between 4.1% and 4.3% for a few months, before falling to around 3.25% in 2024. Others Analysts, such as those from Nomura, go further with the ECB forecasts and estimate that the rates will reach 4.25% in July, but they agree that, from this moment on, they will go down, to 2.5 % according to your forecast.
One reason house prices won't fall much further is supply constraints. Not many new homes are expected to be built, among other reasons because construction costs have risen by 25% and developers are very uncertain. "There is also a shortage of materials and skilled labor," says Scholtes.
