The Drop in Mortgage Rates and the Real Estate MarketOn June 28, 2019 by admin
The trend of real estate sales in Italy continues on a positive note. The source is Istat, which published data for the second quarter of 2016 on 4 November: the purchase and sale contracts for real estate units grew by 17.9% compared to the previous quarter and by 20.6% compared to the same period of the 2015.
Interest rates on mortgages still falling
After the negative peak, reached in the last quarter of 2012 (-25.7%), the recovery seems to have consolidated and the growth trend is even accelerating. But how many of these operations are attributable to the purchase of one’s own home by families? And to what extent does this phenomenon depend on the simultaneous lowering of mortgage interest rates ?
To answer the first question, a very interesting figure is the one related to the percentage of sales in the last quarter concerning residential buildings (93.9%, with an increase of 20.9% on an annual basis). Also the figure for the first half confirms this trend: in this case the increase on an annual basis is 19.4%. But if we go into the details of the Istat report we note that the growth in sales relating to residential properties is a much more significant effect in small towns (+ 22.0%, compared to + 19.6% in large cities, where on the other hand, the growth relative to the properties of economic use is greater.
The factors that determine the greatest propensity to purchase a home
The lowering of mortgage interest
We have therefore seen that the good performance of the real estate market seems to depend above all on the recovery of the purchase of buildings for residential use, especially in small towns. But to what extent does this phenomenon depend on the best conditions for access to mortgages?
In these years there are two elements that have led to a significant improvement in the financing conditions by the banks:
- The sharp reduction in the reference indices (Euribor for variable-rate loans, IRS for fixed-rate loans);
- The reduction of spreads applied by banks;
- The confirmation of the positive impact of the new mortgage conditions on the recovery of the real estate market for families once again by ISTAT: the increase in notarial stipulations for the opening of new mortgages in the second quarter of 2016 was 24, 5% compared to the same period of the previous year.
However, we should not think that the conditions for the provision of capital by the banks constitute the only factor that influences the good performance of the real estate market relative to the purchase of the house by the families. We must keep in mind:
- The availability of a minimum of liquidity: in general the banks finance only a part of the value of the property (in general it is not exceeded today 80%), moreover we must consider the fee for the notary, the taxes, the amount possibly to be paid to the intermediary, etc .;
- The availability of a stable income over time: the tranquility of having constant sources of income over time is essential to be able to honor the commitments made and pay off the loan. And this is even more true if we consider that often the duration of the loan can reach even 20 years and more, precisely in order to contain the installment and make it compatible with medium-low incomes;
- The possibility that the purchase and any loan are not paid by a single person (single or single-income family);
The real estate market seems to confirm the trend of increase in residential property sales, certainly also due to the benefits induced by the drop in interest rates applied for mortgages. However, a stabilization of this phenomenon cannot be taken for granted, and will probably be linked to a general recovery of the economy, above all with effects on the labor market, and to the maintenance of the current policies applied by the banking institutions to favor the disbursement of mortgage loans.
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