Houses are going to become cheaper in the main European capitals, but they will not do so enough to compensate for the loss of purchasing power of families. That is the future described by the credit rating agency Moody’s in an analysis released this Wednesday. The report puts the magnifying glass on a dozen Western European capitals, including Madrid. And it concludes that the increase in the cost of living due to inflation and the rise in interest rates due to the change in monetary policy of the European Central Bank will weigh more on households than the cheaper housing.
The first evidence for Moody’s experts is that housing is more unaffordable than ever in most capitals. This is not the case in Madrid (nor in Rome and Dublin) because the effect of the real estate bubble at the beginning of the century still weighs and until 2010 buying a house required even more effort. But unlike what has happened in the Italian and Irish cities, as well as in Milan and Paris, in the Spanish capital housing has become more unaffordable since the pandemic, in line with what has happened in other markets where Prices have warmed in recent years.
The report measures the effort in years of disposable income of households that would be necessary to buy a house, taking the average for each place in both references. In Madrid it exceeds 15 years, which places it behind Amsterdam (more than 25 years), London (close to that same mark), Paris and Dublin (both approaching 20 years), and Frankfurt, with a rate slightly higher effort. But comparatively the situation is better in Lisbon, Berlin, Milan, Stockholm and Rome.
If we talk about housing prices that sting households, the most painful situation is experienced “especially among first home buyers,” point out the authors of the analysis. The rise in interest rates makes it difficult for those who have bought a home with a loan to pay the bills. The reason for focusing on large cities is that in these “mortgages are larger” and this means that “even small increases in interest can significantly increase households’ monthly payments.” Furthermore, there is a percentage of the population with medium and low incomes that cannot afford to buy and has no choice but to rent.
That, in turn, causes the granting of mortgages to slow down — in August 22.7% fewer were granted in Spain than in the same month of 2022, according to the latest statistics from the INE, published this Wednesday — because there are more potential clients who do not meet the banks’ requirements for granting loans. And that general slowdown in the market will help drive down housing prices.
In this case there are already some of the cities analyzed. In Amsterdam, housing has become cheaper by almost 5% in the first half of this year. And in Frankfurt it has done almost 6.5%. But it is not enough, nor does it seem like it will be. In those same cities, Moody’s calculates that prices would have to plummet by 24.6% and 31.5%, respectively, to compensate for the loss of purchasing power of families and for the effort rate not to increase. They are the most extreme examples along with Berlin, where the drop would have to reach almost 30%. In Madrid, just under 7% would be enough, the lowest percentage after Dublin (-5.6%) and in line with Paris or Milan. “We expect that in 2024 housing prices will fall further in some, but not all, large European cities,” the analysis states. And it removes any expectation of optimism for potential buyers: “The expected falls will be significantly smaller.” [que las que calculan que serían necesarias] and they will not be enough to improve affordability.”
Among the reasons why they believe this will not happen, they point out the lack of housing supply due to less construction. Activity is reduced because with falling prices and high inflation, the margins for development companies are reduced, although Moody’s points out that those dedicated to creating housing for the wealthiest demand will see their profits reduce less. And he notes a positive note for Spain, which he cites as an example of “countries where construction activity is resisting more.”
Follow all the information Economy and Business in Facebook and xor in our weekly newsletter
The Five Day agenda
The most important economic quotes of the day, with the keys and context to understand their scope.
RECEIVE IT IN YOUR EMAIL
#Moodys #predicts #cheaper #houses #European #capitals #unaffordable