Owning a home is becoming increasingly difficult for Spaniards. The sharp rises in Euribor in the second half of last year have made mortgages much more expensive. Moreover, house prices have not risen this much since 2006.
According to the monthly index of real estate appraiser Tinsa, buying a house, whether new construction or existing, was on average 8.2% more expensive than the year before. 2006 saw an even sharper increase in prices within a year, at the height of the property bubble. That year, house prices across the country rose by an average of 14.2% year-on-year.
The Spanish property market experienced seven consecutive years of price increases, a trend that has meant that buying a home in the four major provincial capitals (Madrid, Barcelona, Valencia and Seville) is now more expensive than at any time in the past decade.
Highest house price rises in Madrid
Data from Tinsa shows that, of these four cities, Madrid is the one where prices rose the most in the past year. Properties in the capital rose by 10.2% on average. This is the highest increase in a calendar year since 2018. Prices in Madrid have been rising for seven years and have increased 62.4% since 2015, resulting in unprecedented buying and selling prices. Moreover, of the four major capitals, Madrid is the city whose prices are closest to the peak of the property bubble. Homes there cost 11.8% less than at their peak in 2008.
Barcelona
In Barcelona, the country’s second city, the market was considerably calmer. Barcelona recorded a 3.7% rise in house prices last year, the lowest of Spain’s four most populous cities. The Catalan capital experienced the largest price increases in the three years immediately before the pandemic. However, after the shock of the coronavirus, the increase was moderate compared to the rest of the country. Although, this has not prevented house prices in Barcelona from reaching the highest level since 2009.
Valencia
Looking at Valencia, we see that houses have risen by an average of 8.5% over the past year, a rate of increase not seen since 2019, when prices rose by 10% again. This makes Valencia the second city among the four major capitals where prices rose the most last year. The rise in 2022 produced property prices not seen since 2011.
Seville
Finally, in Seville, house prices rose 5.2% last year. House prices have been rising there since 2016, but the increase last year is lower than in 2020, when house prices rose by 5.8% on average. The Andalucian capital recorded an average price in 2022 not seen since 2012. Houses there are still 26.5% cheaper than when the market collapsed in 2008.
A cooling off is expected in 2023
After the small boom in the housing market in 2022, most experts think the market will cool down this year. However, price drops seem unlikely. Although the cost of mortgages has risen rapidly due to the intervention of the European Central Bank (ECB), there are some factors that suggest the effect of interest rate hikes will take a bit longer to materialise.
Delayed effect of interest rate hikes
There are several reasons for this. First, because housing supply is still very low and below the market’s willingness to buy. New construction remains at historically low levels and the supply of existing homes is scarce, especially in big cities. Moreover, many purchasing power investors see housing as a good hedge against inflation, something that will help cushion price declines.
In any case, the market is starting to show signs of exhaustion. ‘Sales have shown some signs of slowing in recent months. Nevertheless, the number of transactions in 2022 was cumulatively high and, combined with moderate supply, this has further pushed up house prices,’ said Cristina Arias, director of research at Tinsa.
Also read: Rents in Spain continue to rise in 2023
