Five Spanish cities are struggling with real estate bubble again

by Lorraine Williamson
real estate bubble

The difficulty of buying a house is close to the level of the ‘real estate bubble’ in five Spanish cities. Prices there have risen sharply in recent months. The monthly amount households have to spend to pay the mortgage is already close to the proportions of 2005-2006, the years before the outbreak of the real estate crisis in 2008.

These are the cities of Madrid, Barcelona, Seville, Palma de Mallorca and Málaga. In these large capitals, the effort, the share of net income spent on housing, is around 40%. Moreover, this is considered the recommended maximum limit for obtaining a loan. But ideally, this should not exceed 30%.

Real estate bubble; Prices are skyrocketing

In Palma de Mallorca, the real estate bubble is the most critical for home buyers. The average effort is 58.74%, followed by Madrid (56.97%). Next comes Málaga (51.09%), where prices have risen at an accelerated rate over the past two years. Furthermore, house prices in the Andalucian capital increased by double digits, reaching record highs.

In fourth place is Barcelona with a ratio of 50.47%, followed by Las Palmas (41.07%), Alicante (39.96%) and Bilbao (39.30%), according to data from valuation firm Uve Valoraciones. However, this tense situation in the housing market is not an isolated case. The average rate rose to 40.5% of income at the end of 2023 in the 276 largest Spanish municipalities analysed by the valuation company.

This is the first time in a decade that the 40% ratio has been exceeded. According to Uve Valoraciones’ data, the last time a higher figure was reached was in 2014 (42.4%). Also, in 2007, 59.5% of net household income was spent on housing, and the minimum percentage was 30.9% in 2021

Cogesa Expats

Buyers of second homes drive up house prices

The analysis shows that the situation is particularly complex in a number of tourist municipalities in Spain. In an analysis, the appraiser states that in this case, the purchase effort is higher than 60% of the net household income. This is the case in 22 Spanish cities. Among others in Santa Eulalia del Río (Ibiza), Adeje (Tenerife), Marbella and Jávea.

“There are Spanish cities where a resident has to spend 60% of his net household income to be able to buy a house. This figure is the result of the fact that a large proportion of housing in the municipality is bought by people who do not live there permanently. They have a much higher purchasing power than the average resident,” said Germán Pérez Barrio, president of UVE Valoraciones.

Expensive neighbourhoods to live in Madrid and Barcelona

If we look at a number of neighbourhoods in Madrid and Barcelona, we see that the highest buying effort is made in Ciutat Vella. There, the average rent is €23,821. The buying effort is 87.57%, while the rental effort is 97.57%. In Eixample, with an average income of €44,874, the buying effort is 65.4%. The rental effort is 55.19%. This is followed by the Retiro district of Madrid, with an average income of €56,077. On average, 64.56% of the income is spent on the owner-occupied home, the percentage that is spent on house rent on average is 40.74%. In the Salamanca district, an average of 61% of net income is spent on owner-occupied homes.

Also read: A whole village for sale near Madrid for €180,000

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