The real estate sector in Spain is showing signs of recovery after a lull caused by the pandemic. According to the General Council of Notaries, sales of apartments reached 64,877 in June, the best monthly performance in a decade. The number of transactions soared by 70% compared to June 2020, when the Covid-19 outbreak sparked a deep recession. Meanwhile, it also represents a significant 41% increase from June 2019. According to experts, the upside is likely to continue in the coming months.
The rebound can be explained by several factors. First, overall views on economic conditions continue to improve. In the second quarter of 2021, Spain’s economy expanded by 2.8%, fueling the labor market recovery. The large volume of savings accumulated by households since March last year also adds to the optimism. Uncertainty and lockdowns have reduced consumption and increased savings to 14.8% of disposable income at the end of 2020, the highest level ever seen.
Stronger property market in Spain also results from cheaper loans. The European Central Bank maintains its ultra-loose monetary policy to support the eurozone economy. That is why the 12-month Euribor interest rate, a benchmark for mortgages, is deep in negative territory.
Meantime, lenders tend to approve more mortgage applications. In June 2021, there was a whopping 87.8% increase in new mortgage approvals, up by almost 35,000 loans from the previous year. Add to this people’s rush to upsize, and you will see the appetite for home buying at its peak.
The rise in home sales is seen across the autonomous communities. Remarkably, the Canary Islands and the Valencian Community saw an increase in second home sales. Pent-up demand is also reflected in property prices jumping by 2.3% in June, the first rebound after several months of ‘near standstill’ or falling prices.
The real estate market recovery is good news. It is backed by strong fundamentals such as an improvement in economic conditions, progress in the fight against Covid-19 and cheaper loans. The sector is returning to normal after shock waves caused by the outbreak. However, to make the recovery sustainable, all market participants, including households, banks, and regulators must remember the lessons from the 2008 crisis when the housing bubble burst. It broke down some major misconceptions about never falling property prices and the unshakable health of the financial system.