Where the middle-class dream was once a primary dwelling in the city, combined with a summer house or garden just an hour or two outside the city, discount airfares make purchasing a second home in the south a more accessible and exotic alternative. Hence, price wars in the travel industry, a common currency, and harmonized laws, make real estate investments in Spain more transparent and attractive to normal, middle-class families seeking retirement options and investment opportunities.
However, this is not to say that the economic fundamentals do not matter. There are many indications suggesting that the Barcelona real estate market is growing softer in the higher end. Properties in the 1.mil Euro and above range are taking more time to sell, and the issuance of new mortgages is slowing.
This suggests that there are certain segments of the market that are more attractive than others. Casamona.com is experiencing an increasing demand from North Europeans for Barcelona properties in the 200.000-400.000 Euro range. So where many of the disconnected fundamentals (rental/mortgage disparities, inflation warp, rising interest rates, etc.) will likely affect the high-end, primary housing market in Barcelona, the lower end, fueled by North European demand, should remain a solid, long-term investment.
Why we will see a collapse?
Because real estate prices are disconnected from fundamentals. House prices and the resulting mortgages are far higher than the rental market, making it impossible to make money as a landlord. It costs less than half as much to rent as to own on a monthly basis. Salaries cannot at all cover mortgages except in the very short term, by using adjustable interest-only loans.Interest rates going back up. When rates go from 4% to 6%, that's a 30-40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.
? 90% of Barcelona loans are now adjustable, not fixed. This means a big hit to the finances of many owners every time interest rates go up, and this will only get worse as more adjustable rate mortgages inch upward.
- Inflation warp. The rest of the economy shows little inflation, but housing inflation has been very high. This disconnect makes houses more expensive in terms of real work. There is no increasing salary to pay off the ever higher interest, so the only way to do it is more work. Many recent buyers will have to postpone retirement because they overpaid for their house.
- The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken. Caveat emptor"
Jonathan Wareham , professor at ESADE- Barcelona and Tine Mathiassen, Director of Barcelona International Real Estate company Casamona.com
