After years of sustained increases in housing prices, the Bank of Spain has turned on the first warning lights. In its latest Financial Stability Report, the organization has indicated that some of its internal models are beginning to detect symptoms compatible with an incipient real estate bubble in the Spanish market.
Although no restrictive measures have been activated for the moment, the regulator warns that it could intervene to limit mortgage credit if the situation deteriorates, with special attention to loans that exceed certain risk levels, such as a high loan to value (above 80%).
In this context, Iñaki Unsain, an expert in the real estate sector, points out that, unlike 2008, "we are not in a bubble because there is no speculative spiral, no easy credit, nor a generalized lack of control of the market." The general director of ACV Gestión Inmobiliaria points out that although we are not on the verge of a bubble, "what we do have is a structural supply crisis that has been worsening for years, especially in large cities."
The expert recalls that, historically, a real estate bubble is characterized by a combination of prices growing well above income, massive relaxation of credit conditions, and a clear decoupling between acquisition price and profitability per rent, factors that are not happening right now.
"We do not have an overwhelmed banking system"
For Unsain, another of the key differences with respect to the scenario prior to the great financial crisis is the attitude of the banks. "Today banks are much more demanding than 15 years ago and there is stricter control by the European Central Bank. We do not have a banking system overwhelmed by savings banks or a bubble of over-financed developers, in fact, 70% less is being built than then."
The expert insists that the market is much more contained than in 2008 and that, even if the Bank of Spain decides to activate macroprudential measures to limit access to credit, the effect would be a progressive cooling, not a sudden explosion. Unsain points out that "limiting the loan to value or the loan to income could stop some specific operations, but it would not eliminate the structural pressure on prices in the most stressed areas. There the problem is not credit: it is the shortage of housing."
"Thinking that prices are going to fall in high-demand areas is naive." "This is not a bubble inflated by greed, as in 2008, it is a system that is not producing enough, and until that changes, prices will remain under pressure," concludes Unsain.