Bank of Spain Sees Early Drop in Housing Prices

Bank of Spain Sees Early Drop in Housing Prices

In a coastal town in Castellón, a forum user reports knowing owners selling terraced houses bought in 2006 at their original price. They have received no offers. According to this account, it is not an isolated case: in second-home areas, "for sale" signs multiply as foreign summer buyers leave. For this participant, the exit trend is no longer just doomsday speculation.

A forum user cites the Banco de España (Spain's central bank) to state it has detected an incipient general drop in housing prices. Another user argues that large investment funds are stopping apartment purchases in Spain because the business is no longer profitable.

Why Funds Are Said to Be Leaving Spanish Real Estate

According to one forum user, the reason is hardly mysterious. A fund buys a block of homes at a discount, rents them out, and waits. The problem is that this model has broken down on both ends. On one hand, laws protecting vulnerable tenants prevent evictions with previous agility: funds are left with occupied apartments where tenants can only pay €50 to €100 per month in social rent. On the other, they continue paying community fees, taxes, and levies for crumbling buildings.

The result, according to this version, is an inventory that generates no return and requires spending between €10,000 and €20,000 per home to relist it. With this outlook, the natural move is to sell. And if everyone sells at once, prices adjust. Not due to market kindness, but arithmetic.

Cash Buyers Now Outnumber Mortgage Holders, Notary Data Shows

Notary data circulating in the sector depicts a shift in buyer profiles. In 2012, there were 17,495 cash home purchases. In 2017, 195,825. In 2022, 258,306. And in the first five months of 2023, more than 122,000 cash transactions were recorded. In May of that year, non-mortgage purchases surpassed those with bank financing for the first time.

This data has a double reading. The optimistic view: there is liquid money in the market, people with purchasing power who do not depend on the euribor. The pessimistic view: credit has become so expensive that those needing a mortgage can no longer compete. When the mortgaged buyer disappears, the market loses its main support.

Euribor Surge Drives Up Room Rentals

The rise in the euribor has had an unintended side effect: the supply of shared flats has grown by 34%. Some owners rent out a room in their own house to pay their mortgage. This is not a marginal phenomenon or a student anecdote. It is a financial survival strategy that turns the owner into a tenant of themselves.

Those who argued that the housing law would completely shut down the rental market were wrong in their diagnosis. It has not closed; it has fragmented. Whole apartments are no longer rented at any price, but rooms are. This says much about the real level of disposable income.

China and the US Have Already Burst: Will It Reach Spain?

China's HY real estate index has fallen 82% in just over two years, returning to 2008 levels. In the United States, office buildings have dropped 30% in a year. In Germany, Canada, Denmark, and China, there are news reports of price drops that barely echo in Spain.

The question is not whether Spanish real estate is immune. The question is how long contagion takes. Some argue that the Chinese bubble could be the black swan triggering a global stock market crash. If the S&P 500 falls sharply, credit contracts, and the Spanish property market feels it. One does not need to be a genius to see the sequence.

Land Is Not Liberalized and Supply Does Not Arrive

The Banco de España stated in writing: the evolution of housing supply and demand will depend on net migration flows. If INE projections hold, which contemplate a significant increase in the number of households, one should expect continued tension in some local markets, given the low figures for new construction permits granted in recent years.

Translated: little is built, much is needed, and land remains regulated. One user argues that land liberalization will not happen because, in their opinion, the State-investor fund-bank-developer-contractor mafia has it well tied up. Meanwhile, empty homes are where nobody wants them: Ferrol has 20% vacant homes, Fuente Carreteros 90%, Madrid only 6%. You cannot send Madrid's demand to Ciudad Real, which has 30%, as if it were a solution.

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The disorienting fact is not the drop itself. It is that in May 2023 cash purchases surpassed mortgaged ones, yet average prices have not collapsed. Something supports the market that is neither banks nor funds. And when that something breaks, it will make noise.