Rate hikes are occurring every few months at the behest of central banks and the word recession is becoming more and more echoed. In this context of uncertainty, many are wondering what is going to happen to the housing market. One of the main consequences seen to date is the rise of the Euribor. In October 2022, the index on which most mortgages are referenced registered an increase of 653% compared to the same month in 2021, to its highest level since 2011, reaching up to 2.63%. In these circumstances, housing demand, sales and property prices are not unchanged. But, when is it estimated that the prices of apartments in Spain will fall?
In the last five years, there has been a trend of stable growth in housing prices, supported by low interest rates and low mortgage rates. However, this picture has now turned upside down. The European Central Bank (ECB) estimates that house prices could fall by 9% in two years, while investment could fall by 15% in Europe. “With the rise in interest rates it will be much more complicated to finance the purchase of a home because banks set more complex conditions,” says Sergio Nasarre, professor at the Universitat Rovira i Virgili.
In the first quarter of 2022, housing prices grew at a rate of 9.8% in the euro zone as a whole. In Spain, prices were rising below average, at 8.5%, behind countries such as Germany, Ireland and Estonia. “There will be a decline in demand and transactions because part of the population will not be able to access a mortgage, especially the most unstable profiles. And that will lead to a mechanism of lower prices to close transactions,” says Olivia Feldman, expert at HelpMyCash.
Four differences in the housing market
The disparities between the housing market in some European countries and Spain are significant. “The cost of buying a house in Europe has increased 45% since 2010, while in Spain this rise has been much lower. Since 2016, after the crisis, it has grown 15%,” explains María Matos, director of studies and spokesperson for Fotocasa. There is another factor that could contain the situation in Spain and that is the increase in investment in more spacious homes and away from city centers to adjust to changing preferences after the coronavirus pandemic. In the same way, the confidence that exists towards the sector as a safe haven asset can revalue real estate.
“Spaniards prefer to keep their homes rather than sell them at a lower price. This leads to a drop in sales because fewer sellers are able to put them up for sale by lowering the price as much as necessary,” adds Feldman.
The effect in Spain of the rise in interest rates will be a “controlled slowdown” of purchase and sale prices in 2022 and 2023, as indicated by the Predictive study of the performance of the residential market in Spain, prepared by Atlas Real Estate Analytics. This report specifies that housing prices will fall by 0.9% in Spain in 2023, reaching an average of 1,691 euros per square meter. It also reflects that the expected evolution for the remainder of this year will tend to fall to an average price of 1,706 euros per square meter, 2.9% higher than the figure recorded in 2021, but moderating its growth.
Transactions will also experience a change in trend next year. It is expected that 2022 will close with a number 2.3% higher than in 2021 (up to 665,754), but in 2023 it is estimated that it will end 15.4% below the figure for 2022 (563,450 in total).
Less housing on offer
Another factor that acts as a brake on an aggressive fall in prices is the decline in the stock on offer. The availability of homes for purchase has been falling for a year, and this is expected to continue throughout the coming year. The market reached a maximum supply in October 2020, with around 700,000 homes published. From this point on, strong sales led to a downward trend in available stock. Between October 2020 and the same month in 2021, supply fell by 2.3% and, thereafter, the decline accelerated. From the 2020 peak to July 2022, there was a 7.9% decline, reaching 640,724 assets on offer. Construction costs also played a key role in this reduction, taking into account that many developers stopped their activity due to the increase in costs.
Real estate agencies have already noticed the changes in the trend. Sources consulted acknowledge that they are at a turning point and that they see a certain slowdown with a reduction in sales and purchases. In addition, it is estimated that by 2023, the gap between the price at which homes are published and the final sale price, which is currently “around 20%” of the final price, will narrow, according to Paula Eseiza , an expert at HelpMyCash.
That is why it is recommended to those who intend to sell to adapt to a reasonable price from the beginning so that the transaction does not take too long. “It is estimated that 24% of the population has stopped buying and selling homes due to the rise in interest rates. When housing prices and rates start to fall, these people will once again become market demand. With this, prices could increase again, although everything will depend on the response of the real estate market,” adds Matos on future expectations.
What is clear is that the financial situation of families is going to be more complicated due to the increase in prices paid on a daily basis. According to InfoJobs and Fotocasa, in the last five years salaries have grown 6% while housing prices have increased 16%, something that will hardly be able to cover the expected slowdown.
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