In recent years we are experiencing an important real estate market recovery. They increase the number of operations, prices and the number of mortgages. The question is: Shall we talk about bubble? in my opinion not, and I think I can provide data that supports this consideration. I will focus on those related to Catalonia with some extension to Barcelona.
As far as the number of operations is concerned, the year 2021 has been the most active since 2017, but we must bear in mind that we come from a 2020 with the market partially closed due to covid and, therefore, with a stagnant demand that emerged in 2021. In fact, if we calculate the 2021-2020 average, the result is a figure lower than the sales of the year 2019 and also of 2018.
With reference to prices, the INE data for the fourth quarter of 2021 place the prices still 15% below the first quarter of 2007, year prior to the real estate-financial crisis. It is worth making a nuance, new construction (due to the stagnation of production in recent years) has already exceeded the price level of 2007, while second-hand housing is far from those levels.
It is important to highlight that in 2021 new construction has represented only 17% of operations while second-hand has been the main driver with 83%. This data indicates that we are working with a very limited supply, contrary to the years prior to the crisis in which it was built massively.
Another element to be evaluated is the indebtedness of the buyers, for this reason we analyze the volume of mortgages. in Catalonia the number of formalized mortgages is clearly lower than the number of homes sold. In fact, in 2021, 27% more purchases were formalized than mortgages, an indicator that implies that there is a significant contribution fromand accumulated savings in operations.
The evolution of the average value of mortgages is also favorable, which in 2021 was 162,000 euros, far from the maximum of 2007, which was 184,000 euros. In this sense, it helps to value this figure knowing that the average duration of formalized mortgages is 24 years and that the majority, 67%, are contracted at fixed rates, which during the year 2021 have been around 2.8%. With these data we can calculate the average mortgage payment in Catalonia that stands at 772 euros a month. If we do the same calculation with the figures for the province of Barcelona, the result is a fee of 842 euros per month.
To assess the affordability of this quota, we can calculate the effort it represents on an annual family income of 2.5 times the SMI (33,775 euros in 2021). In Catalonia, the effort would be 27.5% and in Barcelona 30%, both below the maximum effort considered acceptable.
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I think we can say that we are not in a bubble scenario. Prices have evolved since the drop in supply as a result of the real estate crisis that began in 2008, but within a reasonable framework for what refers to the number of operations and the indebtedness of the buyers. Likewise, the market presents tensions from the offer since the new construction has not recovered from the strike due to the health crisis and this may push prices up.
Looking ahead, we must be attentive to the effects of inflation on the ECB’s monetary policy, to the extent that can cause interest rates to rise that would increase the price of mortgages and would reduce the borrowing capacity of buyers with the consequent moderation of prices. Nor can we forget the current geopolitical crisis and its possible derivative on the economy, which would ultimately negatively affect the real estate market.