The demand of housing in Madrid and Barcelona he said enough. And after her the great adjustment of the offer has begun. The price expectations of those who want to sell a home in the two large Spanish cities have begun to significantly revised downward, as reflected in the database of Fotocasa.com, analyzed by The confidential.

The prices output, that the owners of a second-hand house ask for the vast majority of neighborhoods the two great Spanish cities, show declines from their respective all-time highs. In some of them, the declines far exceed the 30%. This is a clear indicator of the extent to which seller expectations are well above what the demand is willing or can afford.

The offer prices of homes in all neighborhoods of Madrid and Barcelona have touched historical maximums in the last two years

This adjustment of expectations is the direct consequence of a market reality. In all neighborhoods of Madrid and Barcelona, without exception, demand prices have hit record highs between 2017 and 2019, according to Fotocasa.com data. And although these prices do not necessarily reflect the level of closing of the transaction, yes they are a leading indicator of future falls. Falls that, on the other hand, have already begun to occur.

This week, a report by Grupo Tecnocasa in collaboration with the Pompeu Fabra University (UPF) from Barcelona revealed that the sale prices of second-hand flats in Madrid and Barcelona fell above the 3% last year. That is to say, five years later, what the real estate sector refused to recognize has happened: buy a second-hand home in either of these two cities it is now cheaper than a year ago.

The recoil is limited, for the moment, to second-hand floors and affects two of the hottest mercados markets’ from the real estate point of view —Madrid and Barcelona—, where the prices have reached highs in a general way in the last two years. But the same report predicts that these declines will not be the last and could spread to other cities..

“In the same way as the expansion spread like an oil stain from markets such as Madrid or Barcelona to peripheral areas, when the center begins to contract, hopefully this evolution that we are seeing in central areas is an indicator of what will happen in the periphery”, José García-Montalvo points out, Professor of Economics at UPF and coordinator of the Tecnocasa report.

The neighborhoods that resist and the most affected

The Fotocasa data reveals how only a dozen neighborhoods keep the bullish push in starting prices: The Canaveral (Vicálvaro), Castillejos (Tetouan), Hellin (San Blas), Jerónimos (Retirement), Ibiza (Retirement), Adelfas (Retirement), New town (Linear City), Trafalgar (Chamartín) The Prosperity (Chamartín). In all of them, the offer prices in January of this year were still climbing until reaching highs. In Barcelona, there is only one point of the city, Sant Martí de Provençals (Sant Martí) you keep the bullish momentum.

In the rest - we talk about more than a hundred neighborhoods between Madrid and Barcelona—, already registered declines in offer prices. In more than a dozen neighborhoods, prices peaked in the fourth quarter of 2019 and they already register adjustments, in some cases, up to 10%, as in La Font de la Guatlla (Sants-Montjuïc), where offer prices peaked in November 2019. However, the most bulky adjustment occurs in the Ensanche de Vallecas – Gavia (Vallecas town). In May 2019 it hit highs and, since then, the adjustment has been 36%.

The demand of housing in Madrid and Barcelona he said enough. And after her the great adjustment of the offer has begun. The price expectations of those who want to sell a home in the two large Spanish cities have begun to significantly revised downward, as reflected in the database of Fotocasa.com, analyzed by The confidential.

The prices output, that the owners of a second-hand house ask for the vast majority of neighborhoods the two great Spanish cities, show declines from their respective all-time highs. In some of them, the declines far exceed the 30%. This is a clear indicator of the extent to which seller expectations are well above what the demand is willing or can afford.

The offer prices of homes in all neighborhoods of Madrid and Barcelona have touched historical maximums in the last two years

This adjustment of expectations is the direct consequence of a market reality. In all neighborhoods of Madrid and Barcelona, without exception, demand prices have hit record highs between 2017 and 2019, according to Fotocasa.com data. And although these prices do not necessarily reflect the level of closing of the transaction, yes they are a leading indicator of future falls. Falls that, on the other hand, have already begun to occur.

This week, a report by Grupo Tecnocasa in collaboration with the Pompeu Fabra University (UPF) from Barcelona revealed that the sale prices of second-hand flats in Madrid and Barcelona fell above the 3% last year. That is to say, five years later, what the real estate sector refused to recognize has happened: buy a second-hand home in either of these two cities it is now cheaper than a year ago.

The recoil is limited, for the moment, to second-hand floors and affects two of the hottest mercados markets’ from the real estate point of view —Madrid and Barcelona—, where the prices have reached highs in a general way in the last two years. But the same report predicts that these declines will not be the last and could spread to other cities..

“In the same way as the expansion spread like an oil stain from markets such as Madrid or Barcelona to peripheral areas, when the center begins to contract, hopefully this evolution that we are seeing in central areas is an indicator of what will happen in the periphery”, José García-Montalvo points out, Professor of Economics at UPF and coordinator of the Tecnocasa report.

The neighborhoods that resist and the most affected

The Fotocasa data reveals how only a dozen neighborhoods keep the bullish push in starting prices: The Canaveral (Vicálvaro), Castillejos (Tetouan), Hellin (San Blas), Jerónimos (Retirement), Ibiza (Retirement), Adelfas (Retirement), New town (Linear City), Trafalgar (Chamartín) The Prosperity (Chamartín). In all of them, the offer prices in January of this year were still climbing until reaching highs. In Barcelona, there is only one point of the city, Sant Martí de Provençals (Sant Martí) you keep the bullish momentum.

In the rest - we talk about more than a hundred neighborhoods between Madrid and Barcelona—, already registered declines in offer prices. In more than a dozen neighborhoods, prices peaked in the fourth quarter of 2019 and they already register adjustments, in some cases, up to 10%, as in La Font de la Guatlla (Sants-Montjuïc), where offer prices peaked in November 2019. However, the most bulky adjustment occurs in the Ensanche de Vallecas – Gavia (Vallecas town). In May 2019 it hit highs and, since then, the adjustment has been 36%.

Vallecas is one of the neighborhoods that has grown the most since the start of the property recovery. The little land that was left free was built and the area, fully consolidated and with numerous promotions of new construction and recent construction, it has been a very strong pole of attraction for the demand expelled from the city center.

In Barcelona, the neighborhood in which the greatest fall has been registered from highs is Sarrià (Sarrià-Sant Gervasi), one of the most expensive areas of the city to buy a house. In February 2017, Advertisements with offer prices higher than 8.200 euros the square meter. Current prices are around 5.600 euros, that is to say, almost a 32% below those highs.

Vallecas and Sarrià, the ones that fit the most

In both cases - that of Vallecas and Sarrià - we speak of very significant adjustments. However, reveal to what extent supply and demand are decoupled. To give us an idea, A recent report from appraiser Gloval reveals that practically half of the homes for sale in Spain —Both new construction and second-hand— are inflated. Situation recognized by different real estate agencies —Tecnocasa has detected that in Madrid the second hand for sale is inflated by almost 20% -, but also from a financial institution.

In the Ensanche de Vallecas and Sarrià the adjustment from the maximum offer prices exceeds the 30%

According to the CaixaBank sector report, although at the national level housing is not overrated, in Barcelona, Madrid and Balearic Islands, the price is above its equilibrium value, an indicator that suggests that the price of housing has been decoupled from the evolution of household income, leading to a “notable stress on the accessibility ratios of the local population”.

Barcelona, more advanced than Madrid in terms of its adjustment process, has suffered the consequences of political uncertainty, both on a regional scale, with the ‘process’, as municipal, with the measures of the mayor Ada Colau. If three years ago foreign buyers and investors carried out one of every two transactions in the luxury market, his weight has been reduced significantly. AND, lower demand, falling prices.

Official statistics and different reports from real estate portals, appraisers and banks are already black on white a reality that had been intuited for several months. The end of the expansive phase of the cycle.

“The residential market in Madrid, Barcelona and Mallorca have been giving exhaustion symptoms. After last summer the first price falls were already detected”, points to El Confidencial, the analyst and economic and real estate consultant, as well as full professor at the Department of Economic Theory at the University of Barcelona. “The situation in these markets, yes, it has nothing to do with that of other cities like Pamplona, Santander or La Rioja, where the prices, they move on average around 150.000 euros, continue to rise moderately”.

In the opinion of Gonzalo Bernardos, the residential market of Barcelona, who started his recovery earlier, has been affected by two factors. The entry into force of the new Real Estate Credit Law and the political instability generated by the cés procés ’, that has caused the “huida” of foreign buyers and from which it has benefited, partly, the city of Madrid.

But, also, in the opinion of this expert, there has been a factor that has been key in this decrease in demand. “2019 it was a very good year from the point of view of family income. Employment rose, wages went up… Why don't they buy a house? Because they are afraid. He message from the right announcing that the crisis is coming has penetrated and has retracted the demand. Families do not buy because they are afraid. And the scars of the past crisis, although they are invisible, do not forget”.

Demand retracts and sales fall

On the other hand, the difficulties in accessing financing and lack of savings continue to limit access to housing owned by new households, of families looking for a housing to become independent or to leave the rent, while the demand for replacement, that is to say, the one who sells her house to buy another, and that it has been one of the main players in the market in recent years, starts to run out.

Also, he investor who bought to rent and who was also very present in the sale, has been reducing its presence due to the sharp increase in prices and, so, in the expectation of lower returns, but also as a consequence of greater legal insecurity. According to Tecnocasa data, in two years, investors have gone from representing the 30% of transactions to 26% from the same.

This lower demand activity has already translated into a decrease in sales, as can be seen in the graph above. At the national level, in 2019 fewer houses were sold than a year before. The first fall in five years. A decline that many experts attribute fundamentally to the entry into force of the new mortgage regulations, while, there are those like José García-Montalvo, consider that “at some point we will have to stop blaming the fall in transactions on the new law. The underlying reality is that there was a market that was slowing down very clearly”.

“He potential control of rental prices or the Catalan decree recently approved have created uncertainty among buyers and investors who have adopted a 'wait and see' position”, points to El Confidencial Juan Fernández-Aceytuno, CEO of the Valuation Society.

The drop in the number of transactions is also observed in the three major market engines: Baleares, Barcelona and Madrid. The graph below shows how in 2019, in all three cases, a fall is observed and, so, a turning point in the bullish cycle that had been recorded since 2014.

Many homes for sale, but the expansive cycle started in 2013 comes to an end to enter a phase in which in most cities we stop selling more”, Lazaro Cubero pointed out this week, director of the Department of Analysis and Reports (DAI) of the Tecnocasa Group.

The stamp that was lived in Spain more than a decade ago, that of numerous 'for sale signs’ catching dust on windows and balconies repeats itself. And with less demand, and just like it happened then, the only way to sell has been by lowering prices. Real estate portals have been collecting these sales for months, However, so far the price drop didn't seem real. Now the transactions intermediated by Tecnocasa —more than 4.000 only in Madrid—, second hand show that it is already possible buy cheaper than a year ago.

“The indicators that first show the change in trend are the ‘asking prices’ or the sale prices that appear on real estate portals. Later, begins to be detected in prices of notaries and registrars and, by last, in the appraised values, with a span of between six and nine months”, Juan Fernández-Aceytuno explains, which points out that the latter are much less volatile securities, “because they are much more conservative”. And he adds that the price evolution models of the Valuation Society already show the change in trend in the middle of 2020.

In the opinion of this expert, “Any manager in the sector has a control panel on their table with different variables that already show more values ​​in orange and red than in green.. Indicating, clearly, a change of trend”.

[Source: The confidential]