Spain’s $6 Trillion Home Market Faces Second Crash in Decade

(Bloomberg) -- Spain’s $6 trillion home market looks headed toward another crash, according to economists who are studying the impact on property demand stemming from Europe’s strictest pandemic lockdown.

While it’s too early to estimate the full dimensions of the blow to demand caused by the health emergency that flared up in March, experts who study the Spanish market say the hit to housing prices in 2020 could range from 6.5% to 15%.

“We’re in the prologue of a decline that will only become apparent in September,” said Gonzalo Bernardos, an economics professor who directs the real estate Master’s program at Barcelona University. “By year-end, prices will have dropped by 12%, because this is maybe the sharpest economic crisis we’ve had.”

The looming crash comes after the Spanish market rose 32% since the trough of the previous collapse was reached at the start of 2014. House-price declines are felt sharply in a country where home ownership approaches 80% and savers tend to use property as their primary nest-egg.

Big Declines

Other observers who predict declines of more than 10% this year include Raymond Torres, at the Funcas think tank in Madrid, and Alejandro Inurrieta, a property consultant and former economist at Spain’s Economy Ministry. Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R.R. de Acuna & Asociados, predicts a 6.5% drop.

The consultants say no factor is as important to house prices as job growth and the economic outlook. Spain’s GDP will shrink 11.1% this year or by 14.4% -- the most of any country -- if there’s a second wave of infections with renewed lockdowns, according to OECD forecasts.

The data does point to a correlation between levels of Covid-19 infection and declines in asking prices for homes.

Navarra and Castilla y Leon, two of the regions with the highest infection rates, showed some of the biggest declines in asking prices in May, versus a year earlier, according to data compiled by Bloomberg from the Health Ministry, the INE statistics agency and Idealista.com, the largest property sales website.

Spain’s $6 Trillion Home Market Faces Second Crash in Decade

By contrast the regions with the fewest cases per 100,000 population -- Andalucia, the Balearic Islands and Murcia -- saw home prices climb 3.8% to 6%.

Still, there are some indications that a housing market collapse won’t be as severe as in the previous crisis. Prices for second-hand homes in Spain will fall 6% to 7% this year but bounce back much faster, said Miriam Goicoechea, head of residential and alternative research at CBRE in Spain.

“We don’t have an excess of supply that needs selling and neither do we have the levels of indebtedness that we saw in the 2008 crisis,” Goicoechea said. “Those two factors will mean we’ll have a much faster recovery.”

©2020 Bloomberg L.P.

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