MADRID – Experts predict rough autumn, according to real estate portal Idealista.com. Although the real estate industry resists, it is always subject to various economic changes. We also look at a few other property market forecasts.
The real estate portal, together with a few experts, list the factors that will play the leading role this autumn. And also provide their forecasts on the property market as to whether more or fewer houses will be sold. First of all, the war in Russia and inflation are taking their toll on investors and consumers.
Not only in Spain, but all over Europe, consumers are noticing a deterioration in the economic situation in general and in expectations. The confidence index is plummeting and interest rates will rise further. This month there are again interest rate hikes and the next month more will follow.
Euribor won’t stop rising
The evolution of interest rates has taken a worrying path, according to one of the experts. The Euribor does not stop rising and has risen almost to 2% so far this year. This increase is expected to reach 2.5% by the end of the year from the value in 2021. Fixed rates have followed the same trend, reducing the supply of fixed mortgages in the market.
In addition, the economic uncertainty is noticeable after the market returned to equilibrium in the recovery after the pandemic. The pandemic caused ruptures in supply chains, triggering the first inflationary tensions. These were exacerbated in a knock-on effect by the outbreak of the Russian invasion of Ukraine. As a result, the price of energy in particular rose and raw materials became scarce. In turn, these caused a greater rise in inflation and consequently the rise in interest rates, price increases and also the cost for new-build homes became higher due to more expensive construction due to higher materials and labour.
Longer sales periods and higher mortgage prices
The coming months will be characterised by higher mortgage prices and longer sales times. Banks will demand more before granting a loan. Consequently, this has slowed down the upward trend in the number of purchases and sales transactions recorded so far this year 2022.
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Among the factors on which the stabilisation of inflation will depend, one of the experts mentions the price of energy, as well as that of raw materials, which are especially essential for new construction in the real estate sector.
Unavoidable price increases
Some experts are calling for price increases to continue in the coming months. “The sector is already a haven from inflation, demand is still there today and shows no signs of slowing down. Foreign investment is coming back. However, the increases will be 6%.”
Demand will remain more or less stable
House prices will rise due to inflation coupled with the uncertainty it brings. However, buyer demand is expected to remain more or less stable as residential properties remain an attractive investment option in the long term, especially in volatile financial markets.
Moderate price increase
However, due to a significant product shortage, the price increase will be moderate. This will be especially true in areas such as Madrid, Barcelona and other major capitals. But also in coastal areas such as Málaga and the islands. The same is expected to happen in the rental market.
Exceptions will remain, such as in some markets where high demand is maintained. This includes luxury homes in large cities and new homes, which are still in high demand due to scarcity.
Fewer home purchases?
The mix of all the above factors does not appear to be in favour of the real estate sector, according to the experts. This is certainly expected to affect prices and transaction volume, where a clear moderation is visible. Still, the experts don’t think there will be significant drops in transaction volume or prices.
According to the National Institute of Statistics (INE), property sales in Spain in the first half of 2022 recorded their best semester since 2007. In this period, there were 330,997 operations, 23.1% more than in 2021. “This pace slowed in June, down 3.4% compared to May and was predictable due to inflation.
Market has highest confidence since 2014
According to studies such as the PwC ‘Emerging Trends in Real Estate’ study, the market is currently at its highest level of confidence since 2014. This is despite rising raw material costs. The experts consulted by Idealista also still see the real estate sector as a strengthened sector that, despite the difficulties and challenges of inflation and the associated uncertainty, is still adapting to new challenges and trends; provides a simple buying and selling experience and supports buyers throughout the process. They forecast a stabilisation of the property market with a recovery in prices towards the end of the year. The market will recover to the positive levels seen in the first half of the year.
Bankinter’s 2023 property market forecast
According to Bankinter’s latest real estate market forecast for 2022 and 2023, the trend of rising house prices in Spain has moderated slightly this year. The expected increase of 2% in 2022 has been reduced to 1%. That is well below the inflation rate. In addition, the projections for 2023 predict that house prices will rise by only 1%. This points to a slowdown in house prices after a whopping 6.4% increase in 2021.
Also according to the Investment Strategy report Analysis and Markets, a cooling of real estate transactions is expected. They could fall by 5% this year after reaching a record with more than 500,000 real estate transactions in 2021.
Analysts at Avalon are divided on the prospects for the real estate market. Some fear a housing crisis similar to that of 2008, while others think the world will experience a housing recession. The latter will play a necessary role in controlling inflation as the real estate market greatly stimulates the economy with its strong need for materials and labour.
Ultimately, the direction of the housing market largely depends on the length of the rate hike cycle. On the plus side, lower prices make homes more affordable for first-time buyers from a purchase price point of view. But in turn, the ability to pay the mortgage may be difficult due to rising rates.
When home sales fall, inventories pile up and builders stop building new homes. This translates into job losses and lower demand for construction products and materials, such as wood and concrete. There are also ripple effects in some sectors of finance, retail, transportation and manufacturing. So also pay attention to the sectors that are directly exposed to the real estate market.
Trends in real estate prices when the bubble deflates
Unlike the stock market, real estate is relatively illiquid and it takes time for a falling market to lead to lower house prices. When buyers decide not to move, prices do not immediately fall. However, the number of transactions decreases, as has already been seen. After a few months, sellers begin to lower their asking prices to sell, another phenomenon that Avalon says is already visible around the world.
Buyers can stand on the sidelines
But even with lower prices, homes can’t be sold because buyers are left on the sidelines. As a result, sellers may take their homes off the market if they don’t necessarily have to sell. This translates into less supply of homes for sale. Ultimately, home prices may fall as opportunistic sellers become forced sellers because mortgages are no longer affordable or for other economic reasons. The longer the recession or rate hike cycle lasts, the more likely this is to happen.