Spain | House prices: again awaiting corrections

One issue that regularly comes up in the real estate market is knowing whether or not house prices are overvalued, especially when prices increase several quarters in a row. There's no easy answer, because it requires comparing the price with its equilibrium price.

Key points

• Key points:
• BBVA Research has developed a methodology for estimating this, and its purpose is twofold: to calculate house price deviation from the equilibrium price only explained by its long-term determinants; and to anticipate the trends of said pricing in the short term.
• Artificial intelligence has been key to choosing the variables that best predict the behavior of house prices among a plethora of variable combinations.
• House prices dropped to their lowest point in 2014, following six consecutive years of decline, but appreciated by 12.5% by 2019 (8.5% in real terms) according to data from the Ministry of Transport, Mobility and Urban Planning.
• The results show that, up until the first quarter of 2020, house prices were slightly above the equilibrium price in provinces or regions where the real estate sector recovered most strongly before the onset of the COVID-19 crisis, in provinces or regions where immigration levels were highest, or where there is more direct exposure to the tourism sector.
• In other regions such as Castile and Leon, Aragon and Castilla-La Mancha, where real estate market recovery following the last crisis has been relatively slower than average, prices stand below the estimated equilibrium price.

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