The Bank of Spain reports that there are currently no alarm signals in the real estate market or signs of housing revaluation. At the same time, the central bank informs: prices have already started to rise and may rise even more due to increased labour and building materials costs.
The supervisor believes that, in contrast to what is happening in some other European countries, the situation on the real estate market does not show any cause for concern in Spain. Moreover, although there is a significant increase in new mortgage lending in 2021, lending conditions are not easing.
According to the latest financial stability report, the demand for real estate purchases experienced a significant increase in the first eight months of 2021 - almost 14% compared to the same period in 2019, which cannot be said about the dynamics of housing supply, which looks more subdued.
The increase in demand is driven not only by the economic and financial sector recovery but also by renewed investment decisions that many buyers have delayed since the pandemic's start. Also, one of the reasons is the change in families’ preferences, who now more often choose new buildings instead of the secondary sector and detached houses instead of houses for several families.
At the same time, the Bank of Spain focuses on the absence of significant dynamics in the supply sector. It indicates that if demand remains at this level, then the number of real estate sold may not be enough to satisfy it.
However, the supervisor believes that implementing the Next Generation European Fund-financed Housing and Urban Revitalization Plan could stimulate housing activity, both in the area of reconstruction and the category of new construction. The budget for this project is 6,82 million euros.
Prices have already increased by 3% and can grow more
The increase in the transactions number in 2021 resulted in a 3.3% year-on-year price increase in the second quarter of the year, thereby reversing the slowdown trend since the beginning of 2019. This value is average, while the growth was 6% in the new housing segment and 2.9% in the secondary market.
Looking ahead, the Bank of Spain predicts that if the recently noticed increase in the cost of building materials continues, this could be an additional reason for the rise in new housing prices.
It should also be borne in mind that the increased activity associated with implementing the Housing and Urban Revitalization Plan may lead to additional pressure on labour and production costs in the construction sector.
Moreover, in parallel with the higher dynamics of sales and the number of home purchase transactions, in the first half of 2021, there was a significant increase in the number of transactions in the field of mortgage lending.
Thus, mortgage lending volume has become 40% higher than in the same period in 2019.
The Bank of Spain explains that this positive development in mortgage transactions is a reaction to the demand factor, as there have been no signs of easing credit conditions in recent months.