NewsWorldHousing faces a 'perfect storm' in the fall: recession...

Housing faces a ‘perfect storm’ in the fall: recession in sight, more expensive mortgages and less money available to buy it

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Anyone who scrolled through the real estate apps installed on their mobile in 2020, at the height of the Covid pandemic, found that housing was more affordable than ever. Nobody bought anything at that moment of maximum uncertainty and prices sank. A year later, that same person could see how the same properties that he had marked on his ‘favorites’ list had become quite expensive. Money was already moving at the rate that the economy was healing its wound. This year has started just as hot, dynamic, with rising prices… but everything can change after the summer. The warning bells are ringing in a sector that is facing a “perfect storm” looming on the horizon with several gloomy clouds: one, inflation that has eroded family income (in Spain more than in the rest of the countries, according to this past Thursday the OECD); another, the rise in interest rates that makes mortgages more expensive and scares away buyers (who can opt for paid savings products now that interest rates have risen); and third, the recession that is predicted for the fall – in the United States it has already arrived – and that would damage the economy, damage employment and, as a consequence, damage the demand for houses.”Citizens read newspapers, listen to the radio… and when they are told that there will be a recession, there is always a percentage of them who take it into account because those messages permeate and paralyze their purchase decision,” Luis Fabra, director of real estate studies at the University of Zaragoza, explains to 20minutes. It is what is colloquially called “the self-fulfilling prophecy”: that the real estate slowdown occurs would not be caused by the real conditions of the market, but by the simple fear of the people that it will occur. That fear would end up producing the prophecy by itself. Sales slowed down in June The truth is that the first signs of real estate cooling are already taking place. The National Institute of Statistics (INE) showed this Friday a fall of 3.2% in the sale of homes in the month of June compared to the month of May. In that same month of 2020 and 2021, operations had grown by 22.7% and 3.8% respectively. Evolution of home sales in June compared to May Henar de Pedro The experts in the sector do not want to talk about a contraction in the market, only about moderation in demand and prices. “There is going to be a change in trend in the real estate sector, of course, but I don’t think we have to be alarmists because we are starting from a very good situation, the figures prior to the pandemic have been exceeded,” says Fabra. The data supports these good roots: sales continue on a positive path (in June they grew by 18.8% compared to the same month of 2021), more houses have been sold up to June than in any other first semester since the times of the real estate bubble (330,997 units) and the rise in prices in July, according to data published this week by Fotocasa, has been the most pronounced in recent months. But what would happen if the economy cooled down? “If we enter a recession and the GDP is reduced, obviously employment will be affected and also the purchase of houses,” advances the expert from the University of Zaragoza. Whether the break in the housing sector is more or less pronounced, says Fabra, will depend on three things: the damage to economic activity inflicted by the recession, its impact on employment and how rates evolve. “The last rise to 0.5% is small, but the Euribor is already at 1%, so a higher rise is being anticipated. If that happens, it would become more expensive for families to finance their home and the requirement to these households will be greater because their ability to pay is already being reduced as other products in their basket become more expensive.” Housing is the greatest destination of resources for any household, so getting a mortgage requires having a planned work horizon and a lot of confidence in the future . “If that changes, people can paralyze their purchase decision,” says Fabra, who contemplates the possibility that the good figures for this year’s operations are due to people and investors who have “anticipated” their purchases precisely in anticipation that an acquisition in the coming months more onerous. “It is true that the demand for housing may begin to decrease and that prices may not continue to grow as much,” says María Matos, Director of Studies and Spokesperson for Fotocasa, who points to three communities that now raise their prices by more than 5 Annual % and that may begin to moderate soon: Madrid, Balearic Islands and Andalusia. In fact, Madrid’s autonomy is already beginning to show signs of real estate fatigue: it is the only one in which sales fell in June: -6.3%, says the INE. The supports of the sector “Despite the worsening of the economic context, the sector real estate shows a marked upward trend”, contradict from the Caixabank research service. The entity underlines that the health of the sector has two supports: on the one hand, that the supply of housing is now lower due to everything that has been sold in recent months (in this way the predicted drop in demand would not affect prices much ); and on the other, that the supply of new housing is also constrained by the war in Ukraine. “Construction costs are becoming more expensive and the supply of materials is aggravating due to global bottlenecks,” they explain from the bank. “The economic uncertainty, the difficulties in finding qualified labor and the evolution of prices are negatively affecting the start of new real estate developments.” Permits for new construction, in fact, could fall to 100,000 this year, compared to 108,000 in 2021. Again, less supply, less demand… and consequently some price stability. The figures handled by Caixabank speak of 550,000 sales this year, almost twenty thousand less than the 566,000 of 2021. The fall would be accentuated next year to 490,000 operations. And the contraction will not only be due to less demand from the Spanish. “Foreign demand may also be impacted by the economic slowdown in the main home buying countries in Spain, which are the United Kingdom, Germany and France,” indicates the study by the bank. Of course, the sector and the experts rule out any type of crack in the sector like the one that occurred after the bursting of the real estate bubble of the first decade of the century. “The evolution of the market has been bullish these years, but prices have not grown by 15% per year as at that time,” says Fabra.

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