Is Spain on the verge of a new property bubble?

The Spanish real estate market is experiencing a rise in prices, but it cannot yet be called a bubble. According to analysts and academics, this is more related to economic growth and inflation than to a bubble. The European Central Bank (ECB) has expressed concerns about "euphoria" in the real estate sector, but it seems to be referring to the housing market in other countries, not in Spain. However, in an increasingly globalized sector, the influence of external trends cannot be ruled out.

According to Ignacio de la Torre, the chief economist at the investment firm Arcano Partners, the current situation is related to housing affordability. He suggests analyzing the so-called tension degree: the share of income that a family allocates to housing payments. "Any value above 35% indicates a strained market, and in 2006 in Spain, it was 46%," he explains, referring to the peak of the previous housing bubble. Currently, the percentage fluctuates between 30% and 32%, creating a different scenario. The problem arises when housing prices start to rise. "If they increase by 9%, as in Germany, or by 20%, as in the USA, it leads to the creation of a bubble," he adds.

Real estate in Spain increased in price in 2021, contrary to many expert forecasts. We have to wait until March for the official data from the National Institute of Statistics (INE), but the annual growth rate for the third quarter was 4.2%, showing a clear upward trend.

There is uncertainty regarding construction, sales, and mortgage agreements. In 2021, about 100,000 construction starts were made, which is comparable to pre-pandemic figures but far from the surpluses of the early 2000s, when the number of new constructions soared to over 750,000 in 2006. According to Bernardos, the current number is insufficient. "The low number of construction starts drives up prices, and many buyers are turning to existing homes, which can lead to an unjustified increase in prices," he says.

The situation in the real estate market has become tense in the regions of regional capitals and centers of strong economic activity due to a lack of supply. However, many experts doubt the possibility of a bubble forming. The Spanish Real Estate Bank warns of growing vulnerabilities in the sector, calling for more stringent oversight.

International analysts are also expressing concerns about the situation in the global real estate market. Organizations like the ECB and the US Federal Reserve are warning about "euphoria" and "vulnerabilities" in the housing markets. Analysis shows that the real estate market in several countries is in an unfavorable state, with Spain ranking second in this regard, just after South Africa.

There is a threat of a bubble forming in the real estate market, but most experts agree that this will not happen before 2024. Considering the price increases in other countries, Spain should be more vigilant and prepare for potential changes in the housing sector.