In 2023, Spanish families who fantasized about buying an apartment came face to face with reality. The real estate market closed the doors in their faces as the European Central Bank (ECB) raised interest rates. Buying a flat, the quintessential aspirational milestone of the Spanish middle class, has become almost impossible for tens of thousands of households.. And everything indicates that this will also continue to be the case in 2024, a year in which the real estate sector will be affected by the same dynamics that have marked 2023: expensive mortgages, fewer sales, but still high prices that will barely move.

Changes in the real estate market have happened at great speed. Let's put ourselves in the shoes of a family that was starting to buy an apartment in January 2022. At that time real estate was going from strength to strength.. 52,902 home sales were closed and more than 36,000 mortgages were granted. The interest on the new loans granted was around 1.44% and an average household made up of two adults could take out an average variable mortgage (150,000 euros for 25 years) allocating 20% of their income to it.

The current panorama is radically different. The initial interest on new loans has shot up to 3.85%, well more than double what it was when it started in 2022. In October 2023, that same average-income household would have to dedicate 33% of its income to paying a typical mortgage of 150,000 euros (13 points more). With these figures, the number of households that meet the requirements demanded by banks to access a mortgage has been drastically reduced.

Consequently, the rise in mortgage prices and the closing of the banks' credit tap have erased the middle class from the real estate equation.. Home sales have plummeted by 17% compared to January of last year and the granting of mortgages has fallen by 22%. In this scenario, it could be expected that prices would have been reduced, which usually happens when demand falls. Nothing is further from reality. Although price increases have moderated, in the second quarter of 2023 house prices were 3.6% higher than in 2022.

More of the same in 2024

Next year, experts predict that the situation will be quite similar to that of 2023. In 2024, obtaining a loan to buy a home will continue to be very expensive, if not impossible, for middle-class households. The markets take it for granted that the ECB will begin to lower interest rates in the middle of the year, but it will take time until this is transferred to the financing conditions of families.. Furthermore, we must not forget that the uncertain economic context, with a Europe in which the GDP has been stagnant for a year, will discourage banks from opening the lending tap again.

“I don't think mortgages will recover next year in a special way, families will continue to have problems buying,” says José García Montalvo, professor at the Department of Economics and Business at Pompeu Fabra University.. Of course, García Montalvo clarifies that in some areas there will already be significant price drops. “We will see a more evident effect on prices than has been the case until now,” he adds.

“Prices are not falling as much as they should based on what we are seeing with sales,” says Josep Maria Raya, professor at the Tecnocampus at the Pompeu Fabra University specialized in real estate matters.. But why does this happen? How is it possible that in a market in which demand has reduced, prices have continued to rise?

One of the keys is the inability of the Spanish real estate market to produce enough new housing to accommodate all the households that are formed each year.. A recent study by the Bank of Spain indicated that in the coming years some 200,000 new homes will be formed each year, while new homes entering the market are around 100,000.. Half of the expected demand. Although the stock of empty housing in Spain is considerable—almost four million, according to the latest estimate by the INE—only one in ten is found in cities with more than 250,000 inhabitants.

Another reason that explains why prices remain high and will not reduce in the short term is because of who the buyers are who keep the real estate market alive.. If we look at individuals, the remaining buyers are families that already have significant assets with which to guarantee the operation, which allows them to request smaller mortgages. “Normally, they are replacement purchases, because the family has grown and needs one more room…” says García Montalvo.. Furthermore, there are still large investors in the market, especially in large cities, with the capacity to undertake large purchases.

More tension in the rental market

Another consequence of the expulsion of the middle classes from the real estate market occurs in the rental market.. Households that under normal circumstances could have afforded to buy, but now cannot due to high financial costs, will have to resort to renting.. A market that is already very saturated due to the lack of supply and enormous demand, especially in large cities.

This only adds more pressure to prices, which seem even less likely to be reduced in the short term.. “It is very difficult for us to see rentals with price reductions. We would have to go to a very bad economic situation. The normal thing is that we continue with significant price tensions,” concludes Josep Maria Raya.

The rise in prices and the recovery in consumption after the pandemic have made a dent in household piggy banks. Spain is not only the large economy of the European Union where families set aside the lowest proportion of income, but also the one in which savings fell the most in 2022, falling to levels lower than the pre-covid situation.. All this, while household spending grew in the Iberian country above the European average and family income suffered the biggest drop among the four large community economies.

Spanish families saved 7.6% of their income in 2022, compared to the 12.7% reserved on average in the EU as a whole, according to data released this week by Eurostat. The proportion of savings registered in Spain is far from the figures recorded in the large European economies. The percentage of income reserved by French and German households, for example, is more than double that saved in Spain. If in the south of the Pyrenees households set aside 7.6 euros of every hundred earned, in the north of the mountain range families save just over 17 euros and in Germany, almost 20. Even in Italy the amount is close to 10 euros.

Habits when managing household income are heterogeneous throughout the Old Continent. According to 2022 data, savings rates exceed 15% of the average income in much of Central Europe – with Switzerland (23.4%) and Germany (19.9%) in the lead – while it is not enough 10% in Southeast Europe —except in Slovenia (14%) and Hungary (13.4%)—, thus placing it below the European average. In fact, in Poland and Greece the rate is negative, indicating that households spent more than they earned and therefore had to use savings accumulated in previous years or take out loans to finance their expenses.

Beyond geographical differences, savings suffered in 2022 in practically the entire continent, although the drop registered in Spain was especially pronounced. The proportion of income set aside by households in the Iberian country last year was 44.6% lower than that kept in 2021, when the percentage of savings reached 13.8%. In this way, the downward trend undertaken after the savings boom produced by the stoppage in consumption during the pandemic is consolidated for the second consecutive year.. In 2020, Spanish households kept an average of 17.5% of their income, an unprecedented rate in the historical series. Two years later, the volume of savings is already below the pre-covid level (8.2%).

Compared to 2020, the savings rate sank by 56.4% in 2022 in Spain. According to Eurostat data, this is the fourth largest decline on the continent, only surpassed by Estonia, Latvia and Lithuania.. Compared to the rest of the large European economies, savings behavior has been significantly more volatile in Spain. In Italy, the data also recovered the ground gained during the pandemic, although it remains at a level similar to that of 2019. For its part, in Germany and France the drop in savings in the last two years barely exceeds 16% and the proportion of income retained by households remains above pre-pandemic data, registering the third best mark in the world in 2022. historical series.

Not only did savings reduce in 2022, so did income. According to Eurostat data, in gross terms, the real income of European families – once taxes, social contributions and the effect of inflation have been deducted – decreased on average by 0.8% last year, thus registering its first decline annually since 2013. In Spain, the fall in household disposable income reached 2.8%, which placed the Iberian country as the fifth EU State in which family income fell the most, only ahead of Estonia, Lithuania, Czech Republic and Latvia. More modest was the decline recorded in Italy (-1.38%), while France (-0.4%) and Germany (-0.6%) were above the community average.

Increase in consumption

This decline in family income and savings in 2022 was framed in a context of inflationary crisis, accentuated by the outbreak of war in Ukraine and the consequent uncertainty about energy supply.. Compared to 2021, prices shot up on average in Spain last year by 8.4%, which was an unprecedented increase. The rise was especially pronounced in the CPI for food and energy, which increased respectively by 15.5% and 11.6% year-on-year.

The inflationary escalation thus translated into an increase in spending spent by households, whose total consumption in 2022 in Spain was equivalent to a total of 793.6 billion euros, 15.1% more than the previous year.. According to Eurostat data, this increase in family spending was higher than the European average (12.3%), as well as the increase registered in the remaining three large community economies (8.2% in France, 9.8% in Germany and 13.8% in Italy).

However, not all of the increase in household spending was due to rising prices.. The full recovery of consumption also comes into play due to the end of the restrictions imposed during the pandemic.. In this way, discounting the effect of inflation, family spending grew by 8.1% in Spain in 2022 – 4.7% in the EU -, driven especially by the reactivation of the leisure and restaurant sectors.. Specifically, the amount allocated to hotels and restaurants increased in the Mediterranean country by 33.1% compared to 2021 and spending on culture and entertainment increased by 34%.

Savings readjustment

After a delicate 2022 economically, in the last year inflation has begun to give a respite to pockets. In fact, the European Central Bank ceased the rate hike launched in July 2022 in October, after ten consecutive increases and leaving rates at an unprecedented level of over 4%.. The objective of the monetary authority was and continues to be to cool the economy to control prices and return inflation below 2%.. In October the figure grew to 3.5% in Spain and moderated to 2.9% in the eurozone, according to Eurostat.

Faced with the new scenario, families are readjusting their savings, according to a study by economists Marta Alberni, Ángel Berges and María Rodríguez published this Wednesday by Funcas. According to researchers, in the last year households have taken advantage of the rise in interest rates to pay off their mortgage debts, producing around 75,000 and 85,000 early cancellations, for a total value of between 9,000 and 14,000 million euros.

However, the authors point out that the “most intense” recomposition of savings is occurring in deposits, which are usually the main destination of household savings and concentrate around one trillion euros.. Specifically, there is an “important transfer” from sight deposits to time deposits, as the latter enjoy a higher remuneration. Furthermore, in recent months families have also opted “in a significant way” for investment funds and for the direct purchase of fixed income securities, such as Treasury bills, which aroused real fervor among savers at the beginning of anus.

Telefónica has proposed an Employment Regulation File (ERE) to the unions to reduce the size of its workforce in Spain. A collective dismissal that could potentially affect thousands of workers, as confirmed this afternoon by union sources consulted by 20minutes. If finalized, the ERE would be the first that the company applies in 10 years, when the last exit file was closed.. The process lasted three years and was closed with the departure of 6,830 'teleco' workers.

The number of employees who would be affected by the collective dismissal is still unknown, although initially information has emerged that pointed to 2,500 workers.. However, this point has been denied by union sources who indicate that the figure will not be known until the negotiating tables are established.

What is known is that the ERE will affect the workers of three subsidiaries of the company: Telefónica España, Telefónica Móviles and Telefónica Soluciones Informáticas. These three 'legal' entities together have 16,000 employees and the regulatory files must be negotiated in each of them. Until the three negotiating tables are established, an official number of affected workers will not be known.

Telefónica officially informed the unions last Thursday that it was preparing a workforce adjustment. However, it was not until this Monday that it emerged that the route chosen will be the ERE.. The union centers are negotiating with the company the new collective agreement that affects the three subsidiaries, a process that will conclude at the end of the year.

The unions are now waiting to know the details of the employment regulation files before making evaluations.. Of course, both UGT and CC OO – the centers with the greatest weight in the 'teleco' – claim that in the event of an exit plan there must be equal opportunities and the link of those affected with retirement must be taken into account.

Telefónica workers are accustomed to the workforce reduction processes that have been happening at a great pace in the last decade. The last departure of workers occurred in 2021 through a voluntary resignation plan to which a total of 2,982 employees joined. Previously, between 2016 and 2018, the company had already implemented similar plans through which the departure of 6,300 employees was agreed, to which another 2,640 were added in 2019.. In total, the company has laid off 11,922 workers since 2016. To them, we should add the 6,830 workers who left the company in the ERE that ended in 2013.

The main difference between the voluntary withdrawal programs that have been applied until now and an ERE is that the former are more guaranteeing for those affected.. Individual suspension plans allow the worker to maintain the employment relationship with the company until retirement, although they entail a considerable reduction in salary.. On the other hand, the ERE implies the end of the employment contract, with which the worker receives compensation and enters the unemployment benefits system.

Troubled times for the company

Telefónica, the eighth largest company based in Spain by capitalization, is going through turbulent times. The turbulence began in September, when Saudi Telecom, a telecommunications company sponsored by the Saudi State, announced its surprise entry into Telefónica after acquiring a 4.9% share package and another 5% share through financial derivatives.

The Spanish telecom company is considered by the Government as a strategic company due to the sector in which it carries out its activity and its involvement in the armed forces, where it totals hundreds of millions of euros in tenders.. That is one of the reasons why the Executive is considering re-entering the company's shareholding through SEPI 26 years after its privatization.

The president of the European Central Bank (ECB), Christine Lagarde, warned this Monday that inflation will rise slightly again in the coming months due to the 'step effect' and has made it clear that it is not yet time to “declare victory” in the fight to tame prices.

This is what the highest authority on monetary policy in the euro zone has expressed in an intervention before the committee on the subject in the European Parliament.. Lagarde expects inflationary pressures to continue weakening in the future, although she recognizes that price increases will accelerate again in the coming months. Pressures that increasingly come from within the euro zone rather than from outside and in which salaries – which seek to recover part of the purchasing power lost during these years – play an increasingly leading role.

This rise in inflation will occur just one year after price increases reached their maximum in October 2022. Since then, inflation in the eurozone has been on a downward path, reaching 2.9% last month.. Starting in November, this favorable effect that arises when comparing current prices with those of last year, which were in crescendo, will disappear, which will drag the eurozone CPI upwards, although moderately.. That is, a good part of the expected acceleration of price increases will be due to a statistical effect.

This phenomenon is already being seen in Spain, where inflation hit the bottom in June of this year (1.9%) and has since risen slightly to reach 3.5% in October.. A figure somewhat above the 2% target pursued by the ECB, but far from the runaway double-digit inflation seen last year.

“We have come out of that period of galloping inflation,” said Lagarde, whose concern now focuses on the uncertainty surrounding the prospects for price growth in the medium term.. “It is not that I am claiming victory, it would be premature, but we have managed to bring inflation down from very high figures to others that are much closer to our objective,” added the president of the ECB.

Lagarde is aware of the difficulties that the historic rate increase has meant for households. But he points out that the objective enshrined in the European treaties for the ECB is exclusively price stability. Furthermore, he added, if these efforts had not been made “we would be in much more complicated situations for citizens, with uncontrolled inflation.”

No news until December

The big unknown now surrounding the ECB is what it will do with interest rates when its next monetary policy meeting arrives, scheduled for two weeks from now.. In it, the central bank will have to decide whether to repeat the October pause – the option that the markets are opting for at the moment – or raise rates again. For the conclave, the Governing Council will have new medium-term macroeconomic projections, which will be key when deciding.

In this sense, Lagarde has limited herself to the usual mantra that has been repeated by the central bank since she decided to pause the increases.. On the one hand, he has insisted that maintaining rates at current levels for a sufficient period of time will help restore price stability.. On the other hand, it has guaranteed that the decisions taken by the ECB in the future will guarantee that interest rates will be sufficiently restrictive for as long as necessary.. Two messages that seek to reinforce the image of the ECB's commitment to inflation and clear up doubts about hypothetical rate cuts.

For now, the possibility of short-term interest rate cuts seems ruled out. Recently, Lagarde pointed out that it is something that will not be seen “in the coming quarters”. However, investors disagree. With a euro economy that has been stagnant for a year now, the markets are betting that the central bank will approve the first rate cuts in the second half of next year.

Complete the reform of fiscal rules

Beyond monetary policy, Lagarde has made a new call to the Twenty-Seven to complete the reform of fiscal rules, which will be back in force in 2024. “We are concerned that the budget framework has not been approved, we hope that it will be done as soon as possible to leave this uncertainty behind,” said the president of the ECB in reference to the issue. The president of the ECB has once again insisted on the countries to withdraw the support measures adopted in 2021 and 2022 to clean up public accounts and return them to a path of sustainability.