The housing market in Spain is still on edge, with houses continuing to become significantly more expensive. In May, the average price of new and used houses rose by 8.4% compared to the same month last year.
The situation is particularly serious in large cities such as Madrid and Barcelona. They have already had 11 months of year-on-year price increases. Tinsa’s data is very similar to that of the National Institute of Statistics (INE), which was released on Wednesday. The INE states that the price of freehold housing rose by 8.5% in the first quarter of this year compared to the same period in 2021, according to the government agency. This is the largest year-on-year house price increase in the past 15 years.
Prices sky high, but still lower than in 2007
Despite this upward trend, consumers are still not suffering from the exorbitant prices recorded during the real estate boom of the 2000s. Prices have risen 31% since bottoming out in February 2015 after the financial crisis, but are still 21.9% below the peak levels of 2007, when the real estate bubble burst.
A boom, not a bubble
Experts rule out Spain facing a new real estate bubble. ‘It is not that the property sector has a bubble, but we have to be aware that when interest rates rise, the income of ordinary citizens falls. So it is possible that demand will decrease and there will be a slight price correction,’ explained José Manuel Marín, financial advisor and CEO of Fortuna SFP, during a recent consultation in Finect.
‘We are not dealing with a real estate bubble, but there is a real estate boom. In some parts of the country, prices are rising very fast because of the economic context, interest rate rises and inflationary pressures. All this will lead to a reduction in the average citizen’s savings capacity, which in turn will have a knock-on effect on the housing market. There will be fewer transactions. Prices will not continue to rise as much as they have done so far,’ says real estate expert Beatriz Toribio.
Bricks and mortar
Many citizens saved money during the pandemic because of existing travel restrictions. Spaniards are very conservative when it comes to managing their money and have a certain fondness for ‘bricks and mortar’. For this reason, housing remains an interesting commodity for many citizens, as it allows them to make a profit by renting.
The direct purchase of housing is usually the main way for Spanish consumers to enter the property market. Due to the high investment, this is now a limited option for many Spaniards.
Also read: Spanish house price market madness