While there are some countries in Europe where this could happen, according to Eurostat data, there are no signs of a property bubble in Spain.
The impending Coronavirus pandemic in 2020 has taken a heavy toll on the economy, affecting all sectors. The housing market was not spared; we saw transactions fall to record lows while house prices rose faster than inflation across the EU. This has never happened since 2001, when the European statistical office Eurostat began collecting data from European Union member states.
However, there are significant differences between some European Union members, and many countries exceeded the 6-percentage-point threshold in the annual growth rate of the House Price Index (the percentage by which the European Commission considers a market to be at risk of a price bubble).
Luxembourg led the way (13.3 percent), followed by Croatia, Portugal (both with 7.4 percent), Slovakia (7.2 percent), Poland, and Germany (both with 7 percent ). They are not the only ones: Estonia (6.7%), Austria (6.5%), and Lithuania (6.4%) also passed the threshold.
According to the report, the property bubble in Spain is not going to happen anytime soon. Prices increased by ‘only’ 2.1 percent, slightly more than Hungary (1.6 percent ), Finland (1.4 percent ), Cyprus (0.7 percent ), or Ireland (0.1 percent ), and very similar to the increase in prices in Italy (2.2 percent ), but less than France (4.4 percent ).
The House Price Index has been used in conjunction with other macroeconomic statistics to develop indicators for analyzing the dynamics of the housing market, and it is a complex set of statistics. The Deflated House Price Index (HPI) connects the nominal house price index and the inflation index (IPC, in the case of Spain).
This index is included in the European Commission’s Table of Indicators for the so-called Macroeconomic Imbalances Procedure (MIP, for its acronym in English). A growth rate of more than 6% is considered an early warning indicator of real estate market tensions, increasing the risk of a price bubble.
In the last decade, Spain has not seen an annual increase above the MIP’s 6 percent threshold, though it did reach 5.2 percent in 2018. Our country’s housing prices have been growing from 0.2 percent in 2014, without ever exceeding the risk of a bubble.
And if anything more than 6% is taken into account, Spain has experienced four years of consecutive declines following the devaluation of the real estate, with two particularly large drops in 2012 (-12.5 percent) and 2013. (-10 percent ).
Portugal, on the other hand, has seen five consecutive years of increases above the real estate bubble risk threshold. From 6.1 percent in 2015 to 8.6 percent in 2018 and 2019, the most recent increase has been slightly softer, at 7.4 percent.
Ireland and Hungary are two other countries that have seen increases of more than 6% in recent years but have now slowed as a result of the pandemic. House prices in Ireland increased by 15.5 percent and 10.8 percent in 2014 and 2015, respectively, and continued to rise in 2016 (7.2 percent), 2017 (9.8 percent), and 2018. ( 7.9 percent ). However, as a form of self-correction, housing prices have remained stable for the last two years (0.0 percent ).
Italy is not in danger either. In fact, it has been negative for the past decade, with the exception of a 0.2 percent increase in 2016. The 2020 increase of 2.2 percent, which is far below the risk threshold, is the highest recorded in the last ten years.
Germany has been one of the large economies that has come under threat in 2020, something that has not happened since 2016. (6.7 percent ). It has remained stable in the last three years before 2020, with increases ranging from 4.3 percent to 5.1 percent.
France, for its part, has remained below the risk threshold for the entire decade, despite the high prices recorded in the large cities. The above-mentioned 4.4 percent increase is the highest in the last decade.
Luxembourg, which had the highest increase (13.3 percent) among the EU’s 27 member states in 2020, has been at risk of a real estate bubble for two years after growing by 8 percent in 2019.
Looking back to the last property bubble in Spain and Europe, in 2010, house prices rose in 23 countries, with only four in the negative territory, led by Greece (-28.1 percent ), Italy (-14.4 percent ), Cyprus (-8.9 percent ), and Spain (-4.8 percent ).
According to Eurostat, between 2010 and the second quarter of 2011, house prices and rents in the EU followed similar paths. However, since the second quarter of 2011, t hey have been on their own and distinct paths .
Since 2010 rents have increased in 25 EU countries while decreasing in Greece (-25.2 percent) and Cyprus (-3.8 percent ). Estonia (140.4 percent), Lithuania (108.6 percent), and Ireland (63.3 percent ) have seen the highest increases in the last decade.
Current rents in Spain have risen by 4.3 percent since 2010, the smallest increase in the EU, trailing by 5.3 percent in Slovakia, 6.4 percent in Italy, and 8 percent in France.
During this period, house prices rose faster than rents in 17 EU countries, while rental income outperformed sales prices in Estonia, Lithuania, Poland, Ireland, Finland, Romania, Spain, Cyprus, Italy, and Greece.
It is safe to conclude that there is no risk of property bubble in Spain happening again, and there is a plenty of space left for price increases before this happens.
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