“The risk of a real estate bubble seems contained” in Spain, but other neighboring economies are going to experience a real litmus test with the rises in interest rates. This is what CaixaBank Research warns in its latest real estate sector report, which will be published on Monday, and to which EL PAÍS has had access in advance. The bank’s research department dedicates one of the sections of the document to evaluating the danger of a real estate bubble bursting in 17 developed economies in Europe, North America, Asia and Oceania. His conclusion is that at least six of those countries (New Zealand, Canada, Australia, the Netherlands, Luxembourg and Sweden) have “clear signs of overheating” in their real estate markets, which in the current context of interest rate rises can cause “a marked correction” of housing prices and impact “on the balance sheets of families and the financial sector.”
The report does not question the monetary policy of the central banks, which in cases like the Spanish believe that it can help to cool down the market and increase the affordability of housing. But it highlights the “concern” about how that same cooling will affect countries whose real estate sectors are “overheated” and have accumulated “imbalances” for a longer time. The problem is that the price correction, which has already started in some markets, is too abrupt, which in colloquial terms is equivalent to bursting the bubble.
To the six countries already mentioned, the study adds a group of six others (Germany, Portugal, France, Denmark, Norway and the USA) with indicators “in areas of concern”. Taken together, based on the housing market surveillance systems of the US Federal Reserve and the European Council for Systemic Risk, the report warns that “the number of economies with an overvalued residential market is approaching the maximum of 2006, the peak of the previous bubble. In fact, now there are 12 countries and then a maximum of 15 was reached. As a whole, the researchers point out, the price of housing in developed economies grew by almost 14% at the end of last year, compared to 4, 1% on average from 2015 to 2019. But eight countries (New Zealand, Canada, Australia, the Netherlands, Luxembourg, the US, Germany and Portugal) showed house prices above 20% in one year.
How did we get here? Although in some cases housing was already rising strongly before the pandemic, the report believes that it was essential to accelerate the process “due to the accumulated savings and the change of preferences” of many buyers and investors. But the authors also consider that the situation this time is very different from that of 15 years ago. They point to less oversizing in the construction sector and also to more contained credit due to macroprudential policies (such as, for example, limiting the amount of the loan to a percentage of the price of the home or the liquidity buffers required from lenders). Although these measures, they add, “are currently insufficient” and “only Norway is implementing an adequate and sufficient macroprudential policy to moderate systemic risk.” The Nordic country is the one with the highest ratio between household debt and income: the former represents 247% of the latter. But other economies also have percentages above 200% (Australia, the Netherlands, Denmark and Sweden) and have not taken the same precautions.
Rising price in Spain
In this international panorama, Spain appears together with Italy and Japan in the caboose. A privileged place in this case because it means that they are the ones with the least risk of bubbles, and therefore of an eventual puncture. The study highlights that the indebtedness of Spanish households (which represents 58.4% of GDP) is below the eurozone average (60.1%). And the effort to buy a house (the relationship between what the mortgage costs and the salary) stands at 33.4%, well below the 52.5% that it reached at the peak of the bubble at the beginning of the century.
This last indicator, however, could still grow a little because CaixaBank Research expects that housing in Spain will continue to become more expensive. Its projection is that in 2022 it will do so on average by 6%, almost triple that of last year. In 2023, he expects the rise to soften again, to 2.2%, the result of a market that “will tend to moderate.” In fact, the bank’s experts believe that the peak of the current cycle has already been reached and this year fewer homes will be sold (about 550,000) than last year. And all despite the pull, after the pothole of the pandemic, of the demand by foreigners, which will make prices grow more in tourist municipalities (7.7%) than in non-tourist ones (4.8%).
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