The golden years of cheap money are coming to an end. After almost a decade with official interest rates at rock bottom, world monetary policy begins to take a turn towards tougher conditions. The Euribor, forgotten after six years in a row in negative, returned to positive figures in April and grows exponentially.
These changes have once again put the focus on a real estate market, in which sales and prices have skyrocketed since the beginning of last year. In the first quarter of the year, house prices rose by 8.5% year-on-year and operations increased by 25.6%. However, in absolute terms these two indicators are still clearly below their pre-bubble level and it may still be a good time to buy.
The trend points to a new scenario in which both housing and the financing conditions to obtain it are going to be less advantageous. “The Euribor has grown in a crazy way, as we have not seen in the last ten years. We had never had a monthly variation of about two tenths in the last ten years,” says Simone Colombelli, director of mortgages at the consultancy iAhorro. Colombelli adds that this rise in the Euribor -the reference interest rate for the vast majority of variable-rate mortgages- it can mean 614 euros more per year for a mortgage of 150,000 euros.
For his part, José Antonio Pérez Ramírez, professor of Real Estate Ecosystem at the Chair of Real Estate Research at the University of Malaga, believes that the rise in rates “will cool down the upward trend that the mortgage market was bringing” and with it the volume of sales, which will lead many potential buyers to switch to renting.
Another consequence of the tightening of credit conditions will be defaults. If the monthly payment of the mortgage increases due to the rise in the Euribor, there will be people who will not be able to face their mortgage. “There may be a considerable increase in defaults that puts pressure on the Spanish banking world,” explains Colombelli.
A good time to buy
Although the Euribor is expected to continue to rise in the coming months, analysts believe that it is still a good time to get a mortgage. Financing conditions are still favorable and market prices are at a similar level to a decade ago.
“If someone is a buyer or looking to buy, this is a good time. What can happen from here in the short term is not that prices go downbut keep going up. And what is certain is that it will be more expensive to finance,” says Fernando Cos-Gayón, director of the Real Estate Observatory chair at the Polytechnic University of Valencia (UPV). “If your purchase option is in the next two years , it is time to buy, because housing is once again becoming a refuge value due to inflation,” he adds.
“At the level of financing, conditions still exist to achieve a fantastic mortgage”Colombelli maintains. “Four or five years ago it was already an achievement to get a fixed rate of 2%. Now we are at much lower levels. There are banks that are still offering close to 1%,” she adds.
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For those who want to sell, the decision will depend on the quality of the product, says Cos-Gayón. “It depends on each one and their needs. Now there is a very voracious demand. If you need to sell, of course, sell because now you have the opportunity to do it in a reasonable time. If your product is very good, you can wait a little longer, but if it’s more than a bunch, sell because we have unsatisfied demand,” he explains.
A very different situation from the bubble
The experts consulted agree that, although prices and operations are booming, lThe situation that is being experienced now has little to do with what was happening before the brick exploded in 2008. The demands of the banks to grant the loans are much tougher than then and the promotion of new construction (one of the causes of the bubble) is at levels up to eight times lower than those of the peak of 2006.
“What happened then was that there was a lot of money in the system. The banks started lending even the money they didn’t have. And that’s the big difference, now the banks have not gone crazy and they are also not so exposed to the brick“, Cos-Gayon explains.
“The real estate bubble was generated because many people bought a property that they could not afford, especially new construction. Now there is much less new construction and 100% mortgages are no longer given. The bump has served to strengthen the systemColombelli reflects. “In some parts of Spain prices may have shot up a bit. But I don’t see it talking about a bubble in the sector”, he concludes.
In this case, the fever for housing is due to a perfect storm of different factors. On the one hand, the pandemic triggered the savings levels of Spaniards and for three months paralyzed activity almost completely. After confinement, many people decided to invest those savings and reactivate purchases that they had already planned. In addition, the experience of home confinement also prompted many to move to housing with better conditions. To this we must add that land is scarce, foreign investment has once again flourished and construction materials have become more expensive.
However, the boom in the real estate market will eventually level off. “There will come a time when this effervescence that is being experienced right now will end. People are accelerating their purchase decision due to a shortage of supply and the horizon of interest rate hikes, which is causing the market to accelerate”, explains Cos-Gayón. “There is still a year and a half or two years left with a demand above of the offer,” he concludes.
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