Spanish house prices have risen at the fastest rate since the start of the country’s financial crisis, fuelled by a broader economic recovery and increased availability of credit.
The housing price index rose 1.8 per cent in the fourth quarter of 2014 compared with a year earlier — the sharpest quarterly rise since the first three months of 2008, according to Spain’s National Statistics Institute.
After 2008, the collapse of Spain’s overheated property market precipitated an economic and financial crisis, culminating in a bailout of one of the country’s biggest banks and skyrocketing unemployment figures.
Spain has started to recover, emerging as one of the fastest growing economies in Europe. Mariano Rajoy, Spain’s prime minister, last month raised the official government forecast for economic growth this year from 2 per cent to 2.4 per cent.
The recovery of Spanish house prices is fuelled by economic growth and is playing a different role compared to other recoveries in the country’s economic history, said Rafael Doménech, chief economist for developed economies at BBVA bank.
“After previous crises, the recovery of the housing sector in Spain was the driver of economic recovery, whereas now it’s the opposite,” he said. “The overall growth in the economy, with increased employment and consumer spending, is the cause — and the recovery of the housing sector is the consequence.”
Carlos Masip, a senior director at Fitch, the rating agency, pointed to increased mortgage lending in Spain and its positive effect on house prices.
“This price recovery is really linked to the return of credit to the economy,” Mr Masip said.
Residential mortgage approvals rose in March 2014 for the first time in four years and went on to rise at double-digit rates, year-on-year, in every month from June onwards, according to data from the National Statistics Institute.
New mortgage approvals in December were up 29 per cent compared with the end of 2013. Average interest rates on mortgages were 3.5 per cent in the same month, against 4.21 per cent a year earlier.
“Previously, house prices had gone down but interest rates applied by banks to mortgages had gone up as lenders became more reluctant to lend,” Mr Masip said. “Now house prices have fallen and interest rates applied by banks are also going down, so the borrower can benefit from the combination of the two.”
Source: Financial Times