Despite soaring prices and dwindling supply, the Bank of Spain has ruled out another property bubble but warned against price rises in certain areas of the country.
The Bank of Spain has ruled out the possibility that the country is in or heading towards another property market bubble.
However, bank officials warn about price rises being unequally distributed around the country, noting “significant price dispersion, with some regions growing less and others under more pressure”.
This comes as prices have soared in the post-pandemic period. According to property website Fotocasa, property purchasing prices are rising 17 percent year-on-year. In the last five years alone, there has been a 40 percent increase in the cost of an average home here.
However, according to a new report from the bank, despite the price rises they remain, in real terms, almost 20 percent below the peak they reached in 2007, before the outbreak of the crisis, and both households and construction companies are in much stronger debt positions than in the pre-crisis period.
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The director general of Financial Stability, Regulation and Resolution, Daniel Pérez Cid, has reiterated that “at present” the bank does not see any risk of a bubble in the housing market, at least not in terms that could trigger a shock affecting the stability of the banking system like in the past.
“At the moment we don’t see those signs of a bubble. It’s a different matter if we are not monitoring, following up and making efforts. But we are not in the situation we were in prior to the previous crisis”, Pérez said during the presentation of the bank’s autumn Financial Stability Report.
Pérez also pointed to market supply issues as an underlying cause that distinguishes it from the previous bubble: “so rigid, it is unable to keep pace with such strong demand,” he said of supply.
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However, others have identified worrying symptoms within the market. The bank’s reassurances come as the European Central Bank (ECB) estimates that residential property in Spain was overvalued by an average of 16.8 percent in June, the highest average level in just over 16 years, since March 2009.
Having overcome a summer slump, the sale and purchase of property in Spain in September hit a record volume of operations with the highest level in almost two decades.
Nonetheless, overvaluation of Spanish property marked an all-time high of 33.3 percent on average in the third quarter of 2007 at the height of the housing bubble.
The Bank of Spain also estimates that housing in the country is more expensive than households can afford, but more moderately than ECB forecasts. The national bank, for its part, calculated an average overvaluation of 9.35 percent at the end of the second quarter.
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There are further differences with the previous property bubble. In 2025, the demand for housing is largely connected to population growth and the boost from tourism, which clashes with supply that does not respond quickly enough.Â
Furthermore, when taking inflation into account, prices are still 17.7 percent below the peak reached at the start of the global financial crisis in 2008.
The report also noted that both family and company debt burdens are at very low levels, a big difference with the 2007 bubble.
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