The Experts Say Spanish Property Prices will Continue Falling in 2013 but Does This Apply to Marbella
23 Mar 2013
Due to the creation of the bad bank and the end of home purchase tax deductions and the super-reduced VAT rate for new homes, house prices will continue to drop next year, albeit at a steady rate. Another decisive factor which will contribute to declining house prices in 2013 will be the lack of financing.
The latest figures released by the National Statistics Institute (INE) show a year-on-year fall of 15.2% for the third quarter. This figure is the highest in recent years, but experts believe that prices will continue to drop to correct the excesses of the property bubble.
Demand may drop when tax breaks end (super-reduced 4% VAT rate and home purchase tax deductions). This situation will be aggravated by the enormous stock of unsold homes, high unemployment figures and weak mortgage lending.
In light of this scenario, the most likely outcome is that houses prices will continue their downward spiral until they re ach a level that tempts homebuyers. The most conservative bets are on a drop of around 10%, but other property market experts anticipate further falls of up to 20%. However this does not apply to prime location areas such as Marbella and Mallorca that has seen some price rises.
The bad bank´s forecasts indicate that house prices will not start to pick up until 2019, which means that demand will be focused on the rental market. However, most people will buy a property to live in and not as an investment.
Fitch expects house prices to decline by a further 15% in Spain in 2013
House prices are still far from bottoming out. According to Fitch, an American credit rating agency, house prices in Spain will fall by an additional 15% in Spain this year. However the Spanish housing market is not the only one that will decline, as Fitch anticipates that the other peripheral eurozone markets will also fall. The agency anticipates that house prices will decline by an additional 13% in Italy and Portugal, 15% in Greece and 20% in Ireland. Fitch´s mortgage default expectations for Spain range from between 9% to 11%.
The outlook for European housing markets will remain extremely depressed this year, although not all countries will be affected to the same degree: the peripheral eurozone markets will be the weakest. The agency´s worst case scenario anticipates that house prices in some of these countries may fall an additional 15% to 20% in 2013 when compared to the houses prices registered in the first half of 2012 . This group includes Spain, Ireland and Greece. According to Fitch this bleak outlook is a consequence of pressure on incomes and consumer confidence.
However it is not only the housing markets of the so-called PIGS that are stuck in the doldrums. The agency anticipates further prices corrections for the United Kingdom, France, Belgium and Holland this year, although they are unlikely to exceed 10%. In these cases Fitch anticipates declining prices as a consequence of common factors such as macroeconomic uncertainty, the large amount of mortgages held by banks and depressed mortgage lending. However, the housing markets in Germany, Australia and the United States are expected to remain stable.
Housing in Spain
Fitch emphasises that house sales in Spain have fallen by 70% since the start of the economic crisis, while prices have undergone a correction of 25% in nominal terms. The agency forecasts that this trend will continue in 2013.
Fitch bases this outlook on the high number of homes repossessed by banks since 2008, and the deleveraging of the country´s financial system, which makes it more difficult for families to obtain credit. Consequently Fitch anticipates that "it will take many years to absorb the current supply of homes even if sales figures pick up and return to pre-crisis levels".
Fitch believes that mortgage default rates in Spain will rise to around 9% to 11% due to higher unemployment and the end of state benefits for many families. In this regard, it points out that in November 2012 there were around 1.7 million families where all the members were unemployed. The agency added that the Spanish mortgage market is "extremely vulnerable to a rise in interest rates in the long term". However, it believes that the prices of money will not go up in the short term.
As Nick Stuart Managing Director of Spanish Hot Properties points out these figures relate to the whole Spanish Property market and not the international property market in Spain which only makes up about 6% of the total market. Also some banks are already discounting their properties below the experts predicted fall figures.
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