AI predicts the next bubble will burst
Last May, Euribor closed at a monthly average of 3.68%, a downtrend that had been brewing for months after hitting its highest level in years last summer. And while forecasts for this month are slightly more optimistic, with June expected to end at an average of 3.71%, medium-term estimates are much more positive. However, a significant drop in Euribor could signal the beginning of the end of a new real estate cycle. At least that’s how the AI interprets it, predicting the bursting of a new real estate bubble in just over 2 years.
According to AI, “making an accurate assessment of the possible bursting of the real estate bubble within a few years is difficult, but based on historical trends and certain economic indicators, we can take a chance.” It is likely that AI will refer to Euribor as one of those economic indicators that need to be looked at to make predictions for the future. Check out his story.
Euribor evolution repeats itself
Just over 16 years ago, the benchmark mortgage index began rising more than one percentage point annually until it reached previously unseen levels, reaching and exceeding 5.3% in the third quarter of 2008. That’s when the real estate bubble burst, leaving construction companies bankrupt, leading to a sharp drop in prices and an economic crisis that would last a couple of years. And even faster than it peaked, it fell to 1.2% in just one year.
“Whereas the last significant real estate crisis in Spain occurred around 2008-2013, and “Looking at the recent boom, we may be approaching the end of the growth cycle.” Likewise, the artificial intelligence has taken into account the change in Euribor in recent months, and its behavior pattern is similar to that of 2008.
For nearly 13 years, the mortgage index has maintained a market-positive stability of between 1.2% and 2%, reaching unusually negative levels in 2021 (-0.050% in January, February and December of the same year). But from the second half of 2022 the Euribor rate soared again and, although not reaching 2008 figures, mortgages repeated what happened during the last property crisis, with a rising curve that is still ongoing and where values are above 4 %. According to Idealista. However, since the beginning of the year the decline has been more than noticeable and it is expected that the index may end the year below 3%.
While it is true that the background and this rationale can serve as a market signal to predict the bursting of the next real estate bubble, AI provides even more signs of sector weakness.
Prices down
High demand and low supply in the real estate market over the years have caused unjustified price increases, which is the main reason for the growing bubbles in the market. All this, coupled with the difficult economic and social situation, amplified by the inflationary phase that has lasted over time (from the beginning of COVID-19 until now), may be more than enough to suggest that another real estate crisis is about to occur. .
Based on market data, for the AI, “prices are starting to show signs of stabilizing or slowing, which could be an early sign that the market is peaking,” although not in a hurry. According to INE, housing prices in Madrid fell by 1.1% in the first quarter of 2024. and compared to the last quarter of 2023. Over the same period, Barcelona also decreased by 0.7%.
Regardless, the slowdown in the real estate market is not what was predicted a few months ago. After home prices soared in 2020 and 2021, industry experts predicted an upcoming decline of 2-5%, but nothing has materialized yet. Moreover, the situation could worsen and make the cost of a home even more expensive, jeopardizing AI predictions.
In addition to INE, financial services agency S&P Global Rating is also announcing price cuts for 2024, although it is eligible; This will only be a “pause” before they rise again by 1.5-2% in two years.
However, without consolidation of the downward trend in the property market, the possibility that the opposite could occur suggests a repeating pattern of the 2008 crisis. Then, and before the bubble burst, prices continued to rise until the last moment. the figures are similar to the current ones (about 2100 euros per m² between 2007 and 2008). Practically a historical high that bottomed out 8 years later when house prices fell below 1,500 euros/m² in October 2016.
Next real estate cycle: from 2 to 5 years
A new real estate cycle is about to arrive, and this is confirmed not only by AI, but also by experts in the sector, such as the head of economic and financial analysis at Ibercaja, Santiago Martinez, who assured in the latest edition of Forinvest that Valencia that ““Real estate is not in crisis, but is moving towards a new cycle.” Be that as it may, these sector bonanza conditions usually last for at least 8 years and at most 12 years, and in each period of time, the economic and mortgage indices are updated and the market undergoes a “reset” that causes a return to the beginning.
Thus, “taking these points into account, a reasonable assessment might be that if a significant correction occurs, The next real estate bubble could burst in 2-5 years. However, this is a forecast based on past and current trends and may change depending on possible economic and political conditions.”
But does AI know more than industry experts? No player in the real estate sector takes for granted a situation like the one in 2008, either in the short or long term., although the market insists that forecasting is difficult and it is best to see the evolution of the market. Economic and political factors such as European Central Bank monetary policy and government housing policy will also influence the length of the current cycle and whether it exceeds the AI warnings within 5 years.