The Property Insider

by Adam Neale

EXTREMES: From icy Stockholm to sunny Marbella, the situation couldn’t be more different

The only other country in the same league is Holland, with a 222% debt to income ratio. There have also been unsustainable price increases, with Sweden seeing an absurd 32% since 2019, while Holland’s are up by 40%. It is because of this imbalance between debt and income, and the unsustainable growth in prices, the Economist, recently sounded the alarm. “Housing busts and recessions that are preceded by this sort of debt build-up tend to be more severe. With central banks now raising rates at the fastest pace in more than four decades, countries drowning in mortgage debt will once again be exposed to nasty consequences.”

Some Spanish Sunshine

But don’t panic. Now, the good news. Here in Spain the housing market, which suffered one of the worst crises in the western world in 2008-2014, is in much better shape. The experience of that crisis had an impact on the behaviour of sellers and buyers, as well as on the broader market, which makes it one of the most resilient in Europe. Household debt is now less than half what it is in Sweden and Holland. In fact, it fell by 50% between 2010-2020, to just over 100% of net disposable income.

In addition, as the market recovered in 2015 from a crisis that saw prices fall a catastrophic 37%, Spaniards began switching to fixed rate mortgages.That ensured they would be protected from exactly the type of swings in interest rates that we’re seeing today. Some 72% of mortgages are now fixed, compared to almost being 100% variable rate mortgages just prior to the crash.

In contrast, in Finland, 96% of new housing loans have variable interest rates while in Sweden it is 48% of new loans

Moreover, Spanish prices have never fully recovered from the last crisis and are mostly still significantly below the 2007 peak. Even with the post-Covid rebound, prices only rose 5.5%. In other words, Swedish house prices increased almost six times as much. There is a consensus that price increases in Spain will ease over the next two years as the economic problems work themselves out. And there is likewise a consensus that Spain will do better than most.

However, what is not certain is what exactly that means. Bankinter believes that prices will fall 3% next year and then 2% in 2024. ING, on the other hand, believes that prices will grow by 1% in 2023 after rising by 7% in 2022.

That still means a real reduction in prices, given that ING expects inflation in 2023 to ease to 4.4%; that is, a 3.4% fall in real prices. That is, in any case, better than the average of a 9% decline in prices that the European Central Bank expects to take place across the Eurozone as a whole.

Optimistic

In the UK, market analysts expect housing prices to fall by 5-10% next year alone. So, Spain’s real estate market is in a better position structurally than most of Europe. There are other elements to consider as well. For instance, Spanish interest rates are likely to remain substantially lower than in other jurisdictions, likely up to 3.6% for fixed rates and 4.1% for variable rates before stabilising (according to ING).

This compares with Swedish fixed mortgage rates moving above 5% and those of the UK also remaining between 5 to 6% over the next two years.

That makes Spanish money cheaper to borrow for people from those two countries and Spain’s cheaper housing and mortgages could be an alternative to more volatile markets at home. Let’s hope so.

In conclusion, I think that there’s plenty of reasons to remain optimistic. I expect that real estate on the Costa del Sol, especially at the higher end, will feel few effects compared to northern Europe. And while, yes, price rises will moderate, we’re unlikely to see a significant decline. Stability and sunshine are my key takeaways then, this year!

Stunning Andalusian-style villa

A wonderful, south-facing Mediterranean property in Marbella Hill Club, one of the most elegant and well-established areas on the Golden Mile. The villa, distributed over three levels, is located in the corner of a quiet cul de sac with just a few other houses.

NUEVA ANDALUCÍA Ref: OP13555

Charming villa walking distance to all amenities

Tel. (+34) 952 863 750 www.panorama.es

ESTEPONA Ref: OP13569

Lovely villa opposite El Campanario Golf Club

Offices at Puente Romano and opposite the Marbella Club hotel

Albarracin, Teruel Height: 1,182

Population: 1,054

Height: 1,523m

Population: 458