Spanish households will experience an increase in their income in 2024 and 2025, but this nominal increase (without taking inflation into account) will not contribute to alleviating the housing access problems of many families. These are going to “persist,” according to Fitch's latest analysis of the mortgage market, because household profits “will be broadly similar to the evolution of house prices.” The rating agency estimates that, on average, housing prices in Spain will continue to multiply the average gross household income by 5.5, a way of measuring affordability. And it warns that this proportion is almost eight times “in large metropolitan areas.”
The study refers to both Spain and Portugal (which the agency includes within the “Iberian mortgage market”) and detects very similar situations on both sides of the Raya. In fact, in the neighboring country affordability has worsened in recent times and, on average, the ratio between house prices and gross household income is six times. “Access to affordable housing is a key social concern in both, especially for young families and new buyers with little savings capacity,” the authors of the analysis point out. This highlights that in recent times aid measures have been implemented in both territories, and cites in the Spanish case mortgage guarantees for those under 35 years of age.
Unlike other European countries, where housing has been getting cheaper for quarters, in Spain and Portugal prices continued to rise last year. And, according to Fitch's forecasts, they will continue to do so at a moderate pace. The reason is that “persistent limitations in the supply of housing are detected, which predominate over the vulnerabilities of demand.” In other words, despite the difficulties of many families, there are still many potential buyers for the houses that go on sale. The agency remembers the record of 15% of sales carried out by foreigners that occurred last year. “We hope that this trend will continue to reflect the attractiveness of Portugal and Spain for some population groups, such as European pensioners and American investors,” the report indicates.
The rating agency considers that foreign purchases are helping to maintain a certain level of transactions in the real estate market, despite the decline compared to the high levels of 2022. But it also recognizes that there are “collateral effects such as overheating of prices in some areas of the Mediterranean coast and in the centers of the main capitals. In fact, the analysis speaks of a market “at two speeds between regions, with stagnant housing values in less populated peninsular areas and solid price growth in large urban centers and in the most tourist areas.”
More mortgage delinquencies
In the strictly mortgage market, Fitch “expects that the supply of bank credit for the residential sector will recover in 2024-2025,” after the setback in 2023. The stabilization of monetary policy and “a possible cut in the interest rates in the coming quarters.” Despite this, the report indicates that late payments will grow in both countries this year, and could moderate again in the past. Compared to a default rate estimated at 2.6% last year, this year and next Spain will move between 3% and 3.5%. In this indicator, two opposing forces are fighting right now: on the one hand, “the impact of inflation that erodes disposable income [de los hogares]”. On the other hand, the possibility opens up that “the reductions in the Euribor in the coming months will alleviate the installments of variable mortgages.”
The rating agency highlights that, as a strategy to protect against rising rates, in both markets, with a lot of traditional weight of variable loans – that is, those that are exposed to interest fluctuations – they have made their way mixed mortgages. These accounted for almost 40% of the total mortgages granted in Spain last year, according to the data handled by the report. “Borrowers are looking to secure competitive fixed rates in the short term in the current high Euribor environment,” say the analysts, who nevertheless believe that many families who have requested this type of loans “are interested in switching to variable rates in the medium term.” , when the majority is expected that the Euribor will normalize.”
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