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The Previous Recession Lasted 6 Years and House Prices Fell by 30%: What will Happen in this Crisis?

During the crisis that started in 2008, the País Vasco was home to the most expensive house prices, but Madrid saw a better recovery; meanwhile, Guadalajara and Toledo registered the greatest price decreases.

In 2008, the housing bubble that had been growing for almost a decade in Spain, driven by the heat of the country’s economic boom, burst. Then, a period of falling prices and declining sales began in the residential market; at the national level, the market had not yet recovered by the time the coronavirus crisis hit earlier this year.

Last time, the fall in prices lasted 6 years, from the first quarter of 2008, when they peaked, to the first quarter of 2014, when they bottomed out. “Between the period just before the real estate bubble burst in 2008 and the moment just before the recovery, average sales prices fell from €2,017 per square metre to €1,414 per square metre, whereby losing 30% of their value“, explains Antonio Ramudo, Data Scientist at Brainsre.

At the end of 2019, according to the Ministry of Development, only 53% of the value lost during the crisis had been recovered, with the average price reaching €1,734 per square metre.

In terms of sales, the volume of homes bought and sold per year went from 952,805 in 2016 to just 299,953 in 2013, representing a collapse of 68.5%. By 2019, when 567,753 sales were registered, only 41% of the transaction volume executed at the height of the boom had been recovered.

Although the peak in terms of the volume of house sales in Spain occurred in 2006, when almost a million homes were sold, the maximum average transaction price (€2,017 per square metres) was not reached until the first quarter of 2008. “This shows that fewer transactions were being registered before prices started to drop,” says the Data Scientist at Brainsre.

Likewise, the data reveals that, after the 2008 economic crisis, the minimum number of house sales was recorded in 2013, when 299,953 units were sold; meanwhile, the value of those transactions continued to decline until 2014, when in the first quarter the minimum average transaction price (€1,414 per square metre) was reached, a value that had not been recorded since 2004.

In other words, before prices began to increase, the number of transactions began to rise. “An uptick in demand produced an initial increase in transactions and a subsequent rise in prices and, vice versa, the decrease in demand led to fewer transactions being registered and, subsequently, to a decrease in prices,” explains Ramudo.

Madrid and País Vasco, the most expensive regions

The regions with the most expensive residential product are also those that suffered the largest decreases in absolute values. In this way, the range between the maximum prices in 2008 and 2009 and the minimum prices reached after the crisis is greater. Such is the case of Madrid, País Vasco and Cataluña.

When the previous crisis began in 2008, the País Vasco was home to the most expensive house prices, but Madrid saw a better recovery, and thus, according to the latest available sales prices, the Community of Madrid leads the ranking. On the other hand, the Canary Islands and the Balearic Islands – regions with the next highest prices after Madrid and País Vasco – have smaller ranges between their maximum and minimum prices, and in both cases, current prices already exceed the peaks seen just before the 2008 crisis.

Where did prices fall by the most last time?

The Autonomous Regions that recorded the greatest drop in prices were La Rioja, Castilla-La Mancha, Aragón and Cataluña, where house prices decreased by more than 40%. Meanwhile, Guadalajara and Toledo were the provinces where prices suffered the largest decreases last time, with collapses of 54% and 53%, respectively. “The large urbanisations of Guadalajara, around the Henares corridor, and Seseña (Toledo) were victims of these sharp price reductions caused by the sudden lack of demand,” says the Data Scientist.

The autonomous cities of Ceuta and Melilla and the Balearic Islands recorded more moderate price drops, with a loss in value of 20% or less.

Andalucía was the mainland region that registered the lowest price drop, with a decrease of only 25% compared to the peaks of 2009.

In terms of the recovery, the islands have performed the best thanks to tourism, second homes and international clients. In both the Balearic Islands and the Canary Islands, current prices are at all-time highs.

On the other hand, Madrid is the mainland region where prices have recovered by the most, with almost 66% of their value now restored compared to the maximum pre-crisis prices. Andalucía is the second region in terms of the recovery of prices, with almost 49% of their value now restored. In this sense, Málaga is the mainland province that has performed the best since the fall, as it has now recovered 85% of the value lost during the previous crisis.

The duration of the fall

Unlike the coronavirus crisis, the crisis that began in 2008 reached different Spanish regions at different times. Then, Aragón was the first region to see a decrease in house prices, specifically, during the third quarter of 2007; and Extremadura was the last to suffer, specifically, during the second quarter of 2011, almost four years later.

In terms of the regions with the most activity, Madrid was the market that began to suffer first, since house prices started to fall there in the first quarter of 2008; it was quickly followed by Cataluña and País Vasco in the second quarter of that same year.

After Ceuta and Melilla, the Canary Islands was the region where the recovery from the crisis began first; there, values bottomed out and began to rise in the third quarter of 2013 – four and a half years after prices first started to fall. In this context, Cataluña and the Community of Valencia were the regions that started to recover next; they began to record price increases in the second quarter of 2014.

Madrid, meanwhile, did not begin its recovery until the third quarter of 2015, almost eight years after the first decreases, from an average of €3,045 per square metre -registered at the end of 2007- to €2,029 per square meter in 2015. Extremadura, the region that was hit the latest, was also the one whose recovery started last. It was not until the second quarter of 2017, when prices there stopped falling and began to grow.

In terms of the duration of the crisis, from the beginning until the end of the price decreases, there was also considerable asymmetry between the different regions: from 4 and a half years in the Canary Islands to eight years in Aragon.

The highest prices, which exceeded €3,000 per square metre, were reached in Madrid and País Vasco in 2008. Those two regions saw the lengthiest decreases, since the price falls -of 33% and 31%, respectively- took seven and a half years in total. Meanwhile, in Cataluña, the decrease in prices was greater, 43% of the peak values reached in 2008, but it was faster, with prices bottoming out there after six years. By province, there was even more variation, since in Álava and Zaragoza the price decreases lasted 10 years, whereas in Santa Cruz de Tenerife, Cáceres and Jaén, they barely lasted four years.

No-one knows how long this crisis will last and many indicators are showing that the regions where coronavirus will have the greatest economic impact are those that are the most dependent on tourism, especially in the short term. “Although that may be true, if the experience of the crisis that began in 2008 has taught us anything, it’s that the regions that recover first and best are the important tourist centres, such as the Balearic Islands, the Canary Islands, Málaga and Alicante,” explains Ramudo.

Prices in the major cities

In the seven most populated municipalities in Spain, the behaviour of the housing market after the bubble burst was relatively similar. Madrid reached its maximum average transaction price earlier than the rest of Spain, in the third quarter of 2007; whereas the Spanish average for that milestone was the first quarter of 2008. Naturally, in other places it was reached later: Valencia, Murcia and Sevilla recorded their peaks in late 2008 and in Malaga the peak was not reached until 2009.

On the other hand, the minimum values were reached between 2013 and 2014 in most regions and since then prices have been rising consistently in the main municipalities.

Strong increase in the sale of new build homes

The years 2007 and 2008 were when the most new-build homes were sold in Spain, with 411,726 such homes transacted. That was also when the percentage of new build sales over total registered transactions reached its peak. Between 2008 and 2009, more than 50% of all sales involved new build homes, a percentage that has gradually decreased until the Covid-19 crisis, although it has remained relatively stable at around 10% since 2016.

In 2016, the new home market bottomed out with just 46,927 transactions registered, representing 11.5% of the more than 409,760 homes that were sold in total (new and second hand). Since then, the number of new homes sold has been increasing slightly, to reach 56,195 operations in 2019.

Had Madrid and Barcelona reached their peaks again?

If we focus on the most important markets, Madrid and Barcelona, we see that in the city of Barcelona, prices reached their peak in mid-2019, at €4,162 per square metre; there, average house prices fell in the last quarter of 2019 to reach €4,131 per square metre. In addition, the volume of transactions has decreased progressively over the last two years – just like in 2008, when prices reached their peak, the number of transactions began to decrease two years earlier.

Furthermore, sales values ​​in Madrid also seem to have peaked, regardless of the health crisis. There, house prices reached €3,362 per square metre during the last quarter of 2019, which was lower than those seen in the previous quarter. Also, the number of transactions registered in 2019 reflected a decrease of 8% compared with 2018.

As we wait for the Ministry of Development to publish data for the first quarter of 2020, and based on the data that does exist, “we observe a slight contraction in transaction values ​​in the main urban centres, which could indicate (leaving aside the consequences of the crisis) a hypothetical fall in prices or at least the stabilisation of them”, says Ramudo.


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