Real Estate Market today

Prices for apartments and houses accelerated at an annual rate of 15% between 1999 and 2005.  In its latest report about Spain, the OECD warned that housing prices are “overvalued by about 30% above the long-term equilibrium level.” The organization notes that in 2006, prices continued to rise by almost 10%, which means that they have risen by a cumulative 130% since 1996.

People’s homes are overvalued by as much as 30%. The construction sector has been one of the country’s growth engines, so it’s cooling down heavily too. Now, Spanish real estate and construction firms are suffering a significant correction in their stock prices

Shares of real estate companies have traditionally been priced above the net value of their assets. It was common until a few years ago for share prices (of the real estate companies) to be 40% to 50% above the value of their assets. In other words, their share prices are higher than what they would be worth if they sold all of their real estate.

The market is evidently at the end of a boom. Real estate firms and construction companies have taken on a great deal of debt in order to finance their growth, which has increased their financial risk. People fear that the slowdown in the real estate market will be greater than anticipated.

The cost of residential homes has dropped significantly. The prices will fall more! The volume of new mortgages sold to Spanish families has fallen by 10% (2007).

From the time that a property comes out on the market until it is purchased, the delay is already more than two years; in some cases, it is three years.

The current financial conditions have worsened as a result of rising interest rates. Families have to work harder and harder in order to buy a home or to pay off a mortgage.

The balance between housing supply and demand is at about 400,000 to 450,000 annual units. “This level assumes that production of new houses will drop by 30%, which could mean the destruction of some 200,000 jobs.”

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