Stabilisation in Spanish property prices but affordability could be key to recovery

Affordability is key to the recovery of the Spanish property market

Some parts of Spain are seeing property prices increase but some experts point out that it is affordability that will be a key to a recovery in the country’s real estate market.

According to, Spain’s number one property portal, Murcia has posted the highest house price rises of all the nation’s autonomous regions at 0.24%.

This makes it one of a select quartet of communities showing positive growth in January 2010 with Valencia second at 0.11%, Cantabria third with 0.09% followed by the Basque Country with 0.06%.

Constantly surveying their listed properties and with almost seven million visitors to the portal in November 2009 alone, is as well placed as any expert to make this claim, according to Chris Mercer, director of Mercers real estate agents.

The bigger picture though is slightly less rosy with overall prices falling 0.28% for January, but still a marked improvement on a fall of 0.57% for the same month in 2009. Thus, the overall feeling is that prices are stabilising, according to Murcia based Mercer.

‘This shows a comforting trend towards a stabilization of the market and the prospect of further prices rises, at least in Murcia, over forthcoming months.  I’m adamant that this market is the most price sensitive I have seen in 27 years dealing in Spanish real estate and this is why Murcia is emerging strongly,’ he explained.

From our Mazarron office we can offer a range of sub €100,000 properties, some detached on private plots, and they’re attracting plenty of buyers for obvious reasons,’ he added.

In contrast, according to Spanish property expert Mark Stucklin of Spanish Property Insight, property prices don’t really mean much unless you compare them to incomes, to get what is known as the housing affordability ratio, the proportion of annual gross income that families have to spend on financing the purchase of a home.

‘The housing affordability ratio in Spain has been going down but only really thanks to artificially and unsustainably low interest rates. By other measures, housing is still significantly over priced,’ he explained.

According to the latest figures from the Bank of Spain, the housing affordability ratio has fallen from a peak of 53% in the third quarter of 2008 to 29% in the final three months of 2009. So Spanish families have to dedicate just 29% of annual income to paying for their home, below the 33% limit recommended by experts,’ said Stucklin.

‘That’s great news for Spanish borrowers, at least for now. The problem is that the improvement is almost all down to record low interest rates, with Euribor currently around 1.22%, down from above 5% in 2008. As soon as interest rates start to rise, which they will, housing affordability could deteriorate rapidly,’ he added.

Another way, according to Stucklin, of looking at housing affordability is to compare house prices to annual disposable income, which gives you a sort of price/earnings ratio that ignores mortgage financing issues.

‘According to this ratio the housing market adjustment in Spain still has some way to go. It rose to 7.7 years at the height of the boom, and has now fallen back to seven years. But that is a long way off the historical average of four, which is where the ratio has dropped to in the US, where prices have fallen much faster,’ he said.

‘It would have been better if more of the improvement in affordability had come from declining house prices, rather than lower interest rates,’ he added.

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