Spanish house price growth is seen as a good thing. We’re not so sure.
Since beginning a steady recovery in 2014, the national House Price Index has risen 6.4%. Sales volumes followed a similar path and there is no doubt the market is getting back on its feet.
But there’s a sting: Why is mortgage lending still so low?
February saw another headline grabbing annual rise of 14% but the base is so tiny it masks the true story: Mortgage approvals in February 2016 were still nearly 80% below their peak in February 2006. With the economy growing, unemployment falling and house prices at all time lows, we could reasonably expect to see more Spaniards buying homes.
In 2014 that assumption began to go wrong:
Our interest was piqued enough to start looking further. To obtain a mortgage, buyers need to convince nervous banks they can really afford one, which leads to an obvious question…
How much does a home really cost?
Banks often use income multiples as a factor in mortgage decisions so we decided to compare average house prices with average salaries to check affordability. Lending 3-4 times annual income might be considered a safe range to the risk-averse banker.
Unfortunately that throws up a stark lending problem:
With wages broadly flat and prices rising, an affordability gap emerges. Spaniards need worryingly high mortgages (and deposits) to buy a home.
|Province||Avg. house price (€)||Avg. salary (€)||Income multiple|
|Santa Cruz de Tenerife||138,934||15,705||8.8|
Finding the balance
The Spanish property market now faces a dilemma if it is to continue a healthy recovery: Solid price rises encourage investment, but if they rise too fast they stifle already low domestic demand.
It’s true the market is unusually well supported by international buyers (who continue to show a willingness to buy) but a strong domestic recovery is key to long term growth. To see a sustainable rise in sales we need to close the affordability gap with more jobs, higher wages – and house price restraint.
We think annual growth in the 3-4% range is safe. Higher headline rises are unwelcome.
Official sources don’t publish average house prices (only an index) so to obtain the most accurate housing valuations, we compiled asking price data in March 2016 from property portals Kyero.com and Nestoria.es – around 1.5 million listings. The latest national salary data is available from www.agenciatributaria.es.
Kyero.com promotes 200,000 properties in Spain to international buyers in 13 languages