Curious relationships

What buying cars have to do with house prices?

Believe it or not, a lot. Statistically when vehicle sales increases, so does the house sales, and vice versa. Experts noted that the registration of cars is a leading indicator of what will the house market do in a very near future. The experts emphasize that when there is confidence on the economy and jobs are created, the first purchase decision within the family is to replace the old car and then comes the house. This has been proven statistically.

Car sales are a thermometer on the economy of a country, its consumption and the confidence of citizens in the course of its domestic economy. This thermometer has shown many years of boom and euphoria, but also years of decline and gloom.

Exactly the same as for home sales

This correlation is used by many investors to take the pulse of the economy.

Making a tour of the statistics provided by the Spanish Association of Automobile Manufacturers and Trucks (Anfac), and the National Institute of Statistics (INE), since the outbreak of the crisis in 2007, we can see that sales of both active they began to go down to touch down in 2009.

In that year the Government approved the Plan 2000E to aid the buying and selling of vehicles, a grant aid that extended from June this year and May 2010. During that period citizens managed to improve the statistics but from mid-May to early 2012 the registrations fell again to record lows by the lack of benefits.

The same happened with housing

It was not until 2012 that the Government were to approve another aid plan, known as Plan PIVE currently maintained. Since then the passenger car purchases have remained on the rise, which serves as a leading indicator for the purchase of houses. Since 2007, car sales fell by 36%, while property purchase fell by 54.3%.

What explanation experts give to this correlation? Car sales fall before but also recover before home sales.

When there is confidence that the economy is improving, and employment figures improve the first main purchase decision that the consumer takes is to change the old family car and then comes the big decision of home purchase.

Obviously cars sale is the first to enter the crisis cycle but it is also the first to come out and that is what has been clearly seen in this latest crisis which has hit Spain.

The plummeting figures on new cars purchase foreshadowed what came later, and had a major reflection in real estate. Clearly, vehicles and real estate have parallel paths and cycles, but in this crisis cars sales have pushed out its head out of the crisis and has also been a lever for the overall recovery of consumption, during a time it was normal that when a house purchase was financed, an extra bit was also added the mortgage to also change the car.

Employment, the key to the housing market recovery

Although access to a mortgage and the price of the house are two factors with a lot of weight in the decision of buying a home, however there is another fact that with even more weight: employment. The evolution of the labour market is what makes the market trend and determines whether home sales go up or down.

Don’t forget that the Spanish market caters for nearly 80% of all purchases in Spain so it is a substantial factor which contributes to the market price.

Crossing the employment data published by the National Statistics Institute (INE) with the purchase of housing by the Ministry of Development shows that the evolution of both indicators is inversely proportional: as unemployment descends increases the number of real estate transactions, and vice versa.

The determining home sales factor in Spain is neither the offer of bank mortgages or price adjustments but the creation of employment and its perspectives in the medium term. That is, if more jobs are created more houses are sold with total indifference to prices, developments in the mortgage market or the stock to be sold.