In the real estate market there are question that everyone asks but no one knows how to answer with a monosyllable: is it a good time to buy a house?
Euribor, savings rate, macroeconomic context, banking requirements, new or second-hand construction, city, buyer profile… There are so many fronts that condition the evolution of the sector that the easiest is to say that there are many the answer is that someone is interested in buying.
Unless you’re a kid, of course. In that case, the answer is clear: This is the worst time to buy an apartment (which doesn’t mean you can’t do it).
This time (and for months now) there is a perfect storm in the residential market: inflation that eats up wages and reduced saving capacity, more expensive loans due to rising interest rates, fear of a European economy, banks restricting credit due to fear of default, and this all with the price of floors rising like a person. who can hear the rain.
While it is not raining, the youth are working in the sector as much as they can. Always though (despite the salary, despite the lack of work, despite the lack of savings…). But now that the worst fall, without a financial umbrella there is no way to survive the downpour.
Among the sector experts consulted on Business Insider in Spain, the answer is unanimous. “Today the situation of young people is worse than at other times” said Leopoldo Torralba, senior economist at Arcano.
“The context of the highest rental prices and the tightening of access to financing for purchases means that those under 35 are the most affected and the first to be driven out of the market,” agrees María Matos, Director of Studies and spokesperson for Fotocasa..
According to data from Fotocasa, the index of access to housing for young people has not been as low since 2012, in the midst of the financial crisis. But inflation is at 2.4% and now we are coming from the biggest price crisis since the 80s, and the Euribor fell from 1.8% in January to 0.5% in December, while in August it closed the year at 4%, which in addition. complicates the picture.
1. Work: “They have insecurity through the contract”
“The main factor that makes it difficult for young people to access housing is their employment situation,” summarized Judit Montoriol, chief economist at CaixaBank Research.
For young people, the ground is already muddy before the rains start. If in Spain there is a structural problem of unemployment, temporary work and low wages, young people suffer from it all.
“They have precarious, temporary contract work and earn a quarter less than the average on their payrolls.” explained Matos.
It is true that the labor reform helped alleviate the drama of temporary work among young people, whose rate dropped from 55.4% at the end of 2021 to 38.9% at the end of 2022. But Spain continues to be the European leader in youth unemployment and temporary employment.
“The youth unemployment rate is higher than the general population (22.2% compared to 12.9% in 2022) and they also tend to have temporary employment contracts, with consequent instability- on the income attached to it” , added Montoriol.
According to INE’s latest annual salary structure survey, the average annual income per worker will be around 19,000 euros for young people between 25 and 29 years of age in 2021, compared to 26,000 euros for workers of all ages.
With this panorama, emancipation seemed a distant possibility. Only 15.9% of those under 34 have the capacity to live independently, according to data from the Spanish Youth Council. Or, what’s the same, 84.1% can’t free themselves. A figure that does not reach half of the average of the EU (31.9%) and that has decreased (the emancipation rate is 24.2% in 2012).
2. Inflation: a hole through which money flows
As if toiling through the crucis wasn’t enough, along came inflation. Almost 2 and a half years after the price crisis began, households are barely able to cope with needs, and young people, once again, bear the brunt.
“Within vulnerable groups, This situation affects young people more: They have suffered the loss of rights, insecurity, low wages, temporary work since the crisis of 2008… Then came the pandemic, and with the current crisis, all this is getting worse,” explained Juan Antonio Báez, vice president of the Spanish Youth Council.
At a time when prices do not stop rising, but salaries do not grow at the same rate, many young people cannot cope with unexpected economic events, the Living Conditions Survey (ECV): about half of young people on 16 to 24 years old. (40.3%) cannot cope with unexpected events of 650 euros per month.
The evil of insecurity is endemic in the youth group, but the evil of inflation is new. in an economy accustomed to relatively low rates. Between 2002 and 2020, before the price crisis began, the highest was reached in 2008 with 4.1%, light years from 8.4% in 2022.
Today, however, inflation is a real problem that households face just by going to the supermarket or gas station. The continued perception that, with the same money as before, you have access to lower and lower, only further complicates the road to buying an apartment..
3. Savings: no purchase cushion cushion
The equation is simple. If you have less money coming into your home, and life has become more expensive, your savings are less, and a good savings bag is exactly what you need to face the purchase of an apartment.
To be able to buy an apartment with a mortgage, most banks usually ask for at least a down payment between 10% and 20% of the purchase price, and that, “in the case of young people, it is more difficult, ” he said. Matos. Unless they have financial help from a family member.
“Saving as a child is very difficult. That complicates being independent, buying a house… You have to work in big cities, where rents are higher, and that will further reduce your purchasing power, “Inés Ferreirós, coordinator of the policy laboratory to the public at the Alternativas Foundation.
Perhaps the great confinement obtained from the pandemic made us spend less, and that increased the savings bag of the Spanish. But with inflation the piggy bank was emptied, from occupying 25% of household income to only 12.6%, according to data from Eurostat and DWS. A percentage that, in the case of young people, is even lower.
4. Interest rates: Loans to the price of gold
In 2023, what you have is worth less, but what you don’t cost more. Constantly rising interest rates make mortgage loans more expensive. Currently, the interest paid on loans is the highest since 2008, at the height of the real estate boom.
In December 2021, the Euribor was -0.5%, touching a historical low. Mortgages have never been as affordable as they are now. In some months, this index increased up to 2.8% in November and in August it stood at 4%, the highest level since 2008.
5. Banks: The lending utopia
There are not only economic barriers. In 2023 it will also be more difficult to get the green light from banks to provide a mortgage loan if you are young.
At other times, Torralba explains, “banks facilitate the financing of initial entry to a greater degree than today.” But in the current scenario of uncertainty, not only are loans more expensive (both new subscriptions and existing variable-rate reviewed) but the conditions are also restricted by financial institutions. .
In that sense, young people combine everything to make things jump default bank alarms: lack of assets, job instability and low income.
“With the increase in rates, there are households that exceed 35% of the financial effort to pay the debt in relation to their income, and that no longer fall within the limits of the bank. “, summarizes Gonzalo Bernardos, Professor and director in Real Estate Master’s Degree at the University of Barcelona.
Bernardos warned that the ones who will suffer the most from this stubbornness are the young: “They will be the big losers. They will not give them credits due to lack of solvency“.
6. The price: a ball that won’t stop swelling
Low wages, job instability, rising cost of living, more expensive financing… These are all reasons why buying a house is more expensive, but the prices themselves continue to rise.
“High housing prices are driving this low-income and vulnerable socioeconomic group out of the market,” Matos said.
The price of apartments has not stopped increasing for 9 years, and in some cities it has exceeded the peak of the real estate bubble. And it is in the cities with the most expensive housing where young people can seek more job opportunities, so they lose the possibility to buy.
“Although the wages of young people have increased slightly in recent years (partially due to the increase in the minimum wage), housing prices have increased at a faster and sharper rate,” said Matos. In case of purchase, The price has grown by 23% since 2017, and in the case of rent by 39% in the last 5 years.
“With no previous savings and no job stability, these young people are forced to reject the option of buying, because financial institutions do not provide them with mortgage loans. It is difficult to -access,” Matos complained.
Not in vain, the activity of young people in the housing market does not stop falling, according to data from Fotocasa: if in 2022 the participation is 55% of young people between 29 and 34 years old, this year it has fallen it is now at 45%, nine points lower.