Should I buy the house now or should I wait?
If two years ago we said that housing was not particularly expensive, now things have changed a bit and, since mid-2021, the Bank of Spain has been detecting a slight overvaluation in prices. That prices are above the long-term equilibrium price of housing means that it is more likely that in the medium or long term they will fall or, at least, stop rising, which is what seems to be happening.
In fact, although prices have continued to rise at a good pace in 2022, you are beginning to see a bit of a slowdown in recent months. That is, despite the fact that housing is relatively expensive, prices continue to rise, but more slowly.
Having said that, the market, especially the second-hand market, is still quite hot and there are a lot of sales, but this also seems to be slowing things down, although it will have to be confirmed in the coming months.
We have less money to buy
What is clearly clear is that, although up to now the demand for houses has remained stronger than the supply (there are more people wanting to buy than to sell, added to much less supply of new construction), inflation and the rise in prices of Mortgages are making us have less and less savings, making it harder for us to make ends meet and making the effort to buy a house more and more daunting, so demand could begin to weaken, also contributing to further slowing down prices.
On the other hand, in areas where there is a lot of investor buyer, as brick has historically held up well to inflation, investors may continue to push demand, and prices, up.
It is not surprising then that, in some areas, such as the Balearic Islands, Madrid and Barcelona, the effort rate of households to buy a home, which is measured as the years of disposable income that must be paid out to buy a house, is truly impossible.
“the effort of buying a house is more and more titanic”
In general, households have to mortgage a greater proportion of what they earn to pay for the house, an indicator that the Bank of Spain also points out that it is quite at the limit of what is healthy and whose evolution must be closely monitored, being particularly worrying in lower income households.
Does this mean that prices will go down?
While it is true that everything we have discussed points to a cooling off in the real estate market, rather than declines, it seems that we are talking about stabilization or, rather, less rises.
In addition, luckily, in Spain we have learned the lesson of the last crisis and the real estate market in general, and the mortgage market in particular, are in fairly good health and imbalances are not seen (such as people mortgaged well beyond their means or mortgages on more than 80% of the value of the house) that are observed in other European countries and that could lead to bigger problems and possible falls in prices.
In short, in Spain, for the moment, it seems that rather than going down, prices are going to stop rising or rise less. Which is already something.
And are mortgages going to continue to rise?
It is true that the latest inflation data is finally a little more encouraging and we all want to believe that the frenzied rises in the shopping basket have reached their ceiling. But I’m afraid it’s still too early to claim victory. Until we see how cold winter is going to be and how the conflict between Russia and Ukraine progresses, two things, the weather and the war, about which there is enormous uncertainty and which are totally out of our control, we will not know if inflation is really coming into play or not.
In any case, even if inflation finally begins to relax a bit, interest rates will, at best, stop rising so fast, but in the short-medium term they will not go down even in our wildest dreams. By this I mean that these higher interest rates are here to stay, at least for now, and that there is more risk that they will continue to rise for a while than that they will stay as they are. Let’s not say that they go down.
“the highest interest rates are here to stay”
In the face of uncertainty, prudence, there is no other option
In short, at times as uncertain as these, with so many unknowns over which we have no control and more negative risks than positive ones on the horizon, what you have to do is be prudent and not get your fingers caught.
It’s not that it’s a bad time to buy, but you have to be careful, knowing that prices are relatively expensive, and only buy a house that you can easily afford, and that meets the following requirements:
- The total price must not be more than five times your annual gross salary.
- The mortgage payment must not exceed 30% of your net monthly income.
- You must be able to pay at least 20% yourself.
- You have to finish paying off the house before you retire.
With special emphasis on the second requirement, that the mortgage payment is not more than 30% of your net income, in order to have room to absorb future rate hikes that raise our payments, which the European Central Bank already warns us is more than likely.
If you are thinking of buying a new build apartment or house in Marbella on the Costa del Sol, one of the best areas for property investment in Spain, you could take a look at the residential developments in Marbella WOHNEN.