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Spanish Economic and Financial Outlook

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The Spanish housing market: Is the adjustment over?
José García Montalvo

The housing market adjustment following the bursting of the property bubble in Spain has represented a key challenge for the economy. During several years, the adjustment has largely been made through quantities rather than prices. Nevertheless, the recent evolution of house price indices shows that they are finally adjusting fast and remain on a declining path. In addition, large operations in the Spanish real estate market have helped to increase the confidence of international investors. Some key trends have also emerged in the property market, such as the presence of banks as key players in the sector, the increase in cash purchases versus reliance on external financing, and the larger role of foreign investors and foreign funds. Recent transactions by banks and Spain’s so-called bad bank the SAREB have also been promising. Despite these developments, the stock of new houses remains largely unchanged and banks continue to accumulate repossessed properties on their balance sheets. Ratios show that the Spanish property market remains overvalued, but that progress on the adjustment process is on going.

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