The European Central Bank (ECB) is open to the fact that the rise in interest rates has peaked after raising the price of money for the tenth time since July last year, but at the same time it does not close the door to further increases if the economic situation it requires. Its president, Christine Lagarde, stressed this Thursday that if the cycle of promotions had already concluded, it would still be necessary to maintain the price of money at these levels for a long period, so that inflation returns to the medium-term objective of 2%. . . Over the past few months, the tightening of the issuer’s monetary policy has had an obvious effect on the real estate market.
First, because it has made financing more expensive, both for families seeking to access home ownership, and for developers and construction companies trying to develop rental housing projects, without going any further. The Euribor, the main indicator for variable mortgages, accumulated eighteen consecutive months of increases until July. Last month it broke its bullish streak after closing at 4,073%. This escalation has not only dealt a blow in the form of a sharp increase in the prices of fees for households, but has also significantly cooled the activity of the sector. Registrars and notaries drew a panorama for reflection.
The mortgage firm sank 25.7% in July compared to the same month a year before (a total of 26,280 were established) and property purchases fell 18.4% to 57,255 operations. According to the data handled by notaries, the granting of loans to purchase a home had already fallen by 25.8% year-on-year in June, 23.9% in May, another 32% in April… At the same time, purchases have accumulated eight consecutive months of decline. However, prices have been resisting and only the latest statistics published by the General Council of Notaries reflect a decline of 4.6% in the average price per square meter.
Now, when it can be assumed that official interest rates will remain around current levels until next year at least and that, as the rating agency Scope warns, “they could remain high afterwards”, there is fear of the impact added that this may have on the real estate sector in Spain. More specifically, to new increases in the Euribor that not only increase the installments of variable mortgages, but also push the banks to continue making the supply of fixed mortgages more expensive and that there continue to be changes in the conditions of the mortgages and more amortizations. . early to try to relieve pressure on household budgets.
There will be no significant price drops.
This persistence in the increase in rates may cool the economy somewhat, but the purpose is not to produce a derailment or a radical situation in the real estate market because that would bring new problems, Santiago Carbó, professor of Economics at the University, tells this newspaper. University of Valencia and director of Financial Studies at Funcas. “I think that the market has already assumed that environment. If rates do not rise much more, borrowers will also be able to more or less cope with them with that support framework that has been approved between the Government and financial entities,” he points out. Carbó understands that the residential market can reap the impact with lower growth – close to zero -, that there may be some quarter with a drop in prices, but that this will in no case be very marked or very significant.
There is also the fact that purchases made in cash, by investors who do not require financing, represent a very high percentage of the total operations. According to data managed by the College of Registrars, 38.4% of home purchases were made without financing in the second quarter. For all of the above, the key will be for the economy and the labor market to resist. “The environment will be tougher and that is why we cannot expect so many price increases (in real estate), but I do not see a correction,” adds the director of Financial Studies at Funcas.
Descartes, like other experts, that the market is going to paralyze because it does not contemplate that rates will rise further. “We believe that this could be the last rate hike of this cycle, but the risks continue to trend upward in the short term,” says Sebastián Vismara, Senior Macro Economist at BNY Mellon IM. The expert emphasizes that, despite the weakness of growth, general inflation and underlying inflationary pressures (such as the growth of unit labor costs) remain strong. Although it could increase interest rates even further, the ECB has reached “cruising altitude” today, according to Pimco, the world’s largest fixed-income manager. Another thing is that the Eurozone issuer continues to raise rates, that there was uncertainty, that the economy had a derailment or that there was a situation of excessive real estate promotion… “But all that does not happen,” says Santiago Carbó.
