Spanish property prices dropped by 41.7% between 2006 and 2011

Barcelona (ACN).- Property prices have been in the spotlight since Spain’s real estate property bubble burst. Over the past five years, Spanish property prices dropped by 41.7%, according to a research study by Barcelona-based Universitat Pompeu Fabra (UPF), which was published at the end of April. The study has analysed the sales figures of Tecnocasa (a real estate company) provided from the end of 2006, when the highest housing prices were reached, until the end of 2011. The UPF economist and coordinator of the study, José García-Montalvo, pointed out that the decline in housing prices would continue if the credit market does not recover. According to García-Montalvo, the most severe drop occurred between the second half of 2010 and the same period in 2011, when prices dropped by 19.7% in Spain. Furthermore, the study has also concluded that the decline has not been the same everywhere: the most exclusive areas did not drop as much as working class areas.

According to the results of the study, the fall in housing prices went together with a fall of mortgage average amounts. In 2006, Spanish mortgages reached their peak average amount: €185,201. Since then the average amount has experienced a decline of 36.2%. The trend temporarily stopped in 2008, but the decline of mortgage average amounts deepened in the second half of 2010, when the housing market experienced an accelerated fall.

Not the same decline everywhere

Housing prices and mortgages differ in each autonomy and city in Spain. In the capital of Catalonia, mortgage averages shifted from €180,080, in the second half of 2010, to €143,865, in the same period of 2011, decreasing by 20.11%. Meanwhile, in the second main municipality of Catalonia, L’Hospitalet de Llobregat –which is a working-class residential city attached to Barcelona– the amount fell from €147,666 to €131,769, decreasing by 10.77%.

The lowest prices might not be reached yet

García-Montalvo stated in the study that prices might not have reached their lowest rate because demand cannot be activated if the credit market, economic growth and employment do not recover. He has also detailed that the research is based on sales prices registered by Tecnocasa and it is not based on official taxation figures.

More conservative banks, a consequence of the property bubble explosion

The research of the Universitat Pompeu Fabra (UPF) has asserted that the banks have become more conservative since the collapse of Spain’s real estate market. The value loans, meaning the relation between real estate loans and property value, corresponded to 86% of housing in 2006, but in the last months of 2011 it represented 73%.

The consequences of the shift are significant regarding mortgages. On the one hand, the percentage of mortgage holders with a temporary work contract has shifted from 40% to 8.9% in six years. However, mortgage holders with a permanent work contract have increased from 52% in 2006 to 80% after the property bubble burst in the second half of 2008. This tendency is maintained. On the other hand, the monthly mortgage payment has decreased from an average of €976/month at the end of 2007, when it reached its peak, to €528/month during the second half of 2011, with a rapid decline from early 2009.

Mortgage maturity dates have also changed, including the interest rates required. Mortgages are now to be returned in a shorter period of time. Loans expiring in 40 years time have dropped from 45% to 23%, while the 30 year mortgages have increased from 7.5% in 2006 to 24% at the end of 2011. The latter, the interest rate required –measured according to its differential with Euribor-, has increased from 0.78 in 2008 to 1.67 at the beginning of 2012. According to the research, this rise in the interest rate required has made that the monthly fee/payment have been maintained in many cases, despite the housing price drop.

A “natural selection” in the housing market

According to the head of the department of analysis and reports of Tecnocasa, the contraction in housing demand is producing a “natural selection” in the real estate asset supply side. The price of flats without a lift, small flats or in a bad condition have decreased more quickly than those in better conditions or areas. The best example of this trend can be seen in Barcelona. In the Catalan capital less expensive neighbourhoods such as Guinardó (-54.97%), Maragall-Horta-Vilapicina (-51.16%), Poble Sec (-50.23%), or NouBarris (-48.96%) housing prices have decreased more than neighbourhoods with a better reputation such as Sans-Les Corts (-31.97%), according to Tecnocasa.

More difficulties to sell as time goes by

In early 2012, the selling average has increased to 4 months (117 days), 10 days more than the figures registered in the last quarter of 2011. The number of house buyers has decreased also by 13.3% compared to 2011 and they are willing to pay 8.23% less. Buyers have moved from an average of €132.952 to €122.012 for a small flat with three bedrooms in an average area.