MADRID – The anticipated adjustment in Spain’s housing market for 2023 didn’t materialise as expected. The focus now shifts to 2024, raising questions about potential changes in prices and the viability of investing in rental properties. This article synthesises various Spanish media predictions for the upcoming year’s housing market.
For this article, we searched Spanish media for their predictions for the prospects of the housing market in Spain for the coming year. At the bottom of the article are all sources from which we obtained information. Overall, 2023 is approaching its end with a contradictory balance on the Spanish housing market: mortgage numbers and transactions have decreased compared to 2022, but house prices continue to rise, with a 7% increase.
Continued but moderate increase next year
The strength of the housing market in 2023 has surprised experts, who had predicted a decline in prices due to rapid growth in the sector in the previous year and increased interest rates. However, the reality is different.
Even Bankinter’s analysis department has revised its estimates. Instead of a 3% decline, they now predict a 1% increase in prices for 2023. The main reason for this unexpected resilience is the labour situation in the market with more stable jobs and higher incomes. For 2024, they maintain a forecast of a 2% correction in the context of moderate economic growth, high inflation, and the end of interest rate hikes.
Demand greater than supply
The aforementioned increase in house prices is driven by demand that still exceeds the decreasing supply. Sellers are more willing to negotiate to get a better deal. However, adjustments in the new construction market are not expected until 2024 due to additional costs arising from energy efficiency and sustainability requirements.
Price increases vary by area
The inland regions show the most moderate price increases. A trend that will most likely continue in early 2024. This concerns regions such as Extremadura, Galicia, Castilla-La Mancha, and Castilla y León. Looking at the provincial capitals, Valladolid, Salamanca, Cuenca, and Vitoria saw the lowest year-on-year variations.
Due to the heterogeneity of the Spanish market, declines may become visible in the first quarter of 2024 in some regions with lower demand and fewer tourist attractions. However, these will not be significant declines, due to several factors that point to price stability, such as the aforementioned resilient labour market, high purchasing demand from solvent, investing and foreign buyers, and the persistent imbalance between supply and demand.
Effects of the Housing Act
Contrary to the Spanish government’s expectations, the Housing Act, intended to solve rental problems, has had the opposite effect. Supply has fallen and prices have continued to rise. This has led to a shift from permanent to seasonal rentals. This has made it more difficult for families to access housing. In 2024, given the ongoing political climate where the progressive left led by Pedro Sánchez will continue to govern, this trend is expected to continue.
The expected price declines in 2023 did not occur. Instead, the purchase price of houses in Spain increased by 7%. In dynamic markets such as Madrid and Barcelona, prices were already very high, so the increases here will be more moderate.
The strongest increases were seen in the Mediterranean and the Balearic Islands, driven by international demand with high purchasing power. In cities such as Alicante, Palma and Malaga, prices grew by 15%. The expectation for 2024 is that prices will continue to rise in dynamic markets, while stabilisation or slight declines are possible in other areas.
Bankinter’s report predicts a 7% decline in residential property transactions by 2024. However, this reduction is seen as a return to the historical average of 500,000 transactions per year.
Furthermore, the report also highlights that the profitability demanded of real estate assets is increasing. Only assets with the potential for rental growth will not significantly decline in value. Assets related to logistics, data centres, healthcare facilities, and senior residences are identified as those with the highest potential for rental growth. In contrast, the report expects the value of offices and shopping centres to decline further.
The number of mortgages signed is expected to decline by more than 25% by 2023. Mixed mortgages are becoming increasingly popular and will probably dominate in 2024. Despite higher financing costs, banks remain competitive. The expectation for 2024 is that banks will continue to focus on mortgages, depending on the economic situation and interest rate trends.
Caixabank Research does predict an increase in mortgage costs. The financial institution has updated its predictions for the housing market revised due to uncertainties such as high inflation, geopolitical situations and the increased demand for energy in winter.
Predicting the Euribor for the coming months remains challenging. Although some predict a decline in interest rates, this is not expected to happen in the short to medium term. A possible relief could take place in the second half of the year. However, homeowners with variable mortgages should not expect their monthly payments to drop before 2025.
Despite the increase in purchase prices, rental prices continue to rise. This year they were no less than 9% higher than last year due to the reduction in supply. As a result, real estate investments will remain an attractive option in 2024.
According to a study by Masteos, Elda, Talavera de la Reina, Alcoy, Gandia, Ferrol and Sagunto offer the highest rental income in the country for investments between €80,000 and €120,000. Cities near Barcelona and Madrid, as well as provincial capitals such as Santander, Seville, Salamanca and Valencia, are also considered interesting for investments between €120,000 and €200,000.
The other side of rising rents
Rising rental prices (+9%) ensure that renting in Spain remains a major problem for many families. Rents have risen even further in major cities. At the same time, the supply of permanent rental properties has fallen by 12%. Seasonal rentals have increased sharply as a result of the new Housing Act, which makes it more difficult for families to find a home.
Experts predict that rents will continue to rise in the coming months. Those increases are fuelled by potential buyers turning to renting due to rising mortgage costs. Atlas Real Estate Analytics attributes this trend to the unaffordability of purchasing homes and the decline in mortgages. It also notes that government interventionist measures are causing landlords to increase prices at the start of contracts. This contributes to the general price increases. The American real estate chain Century 21 also predicts rising rents. It proposes increasing the supply of public and social housing to improve housing accessibility. They also suggest promoting the production of affordable rental housing and implementation of financing solutions for youth.
Due to the increase in rental prices in 2023, homeowner profitability has increased by an average of more than 7% so far this year.
Murcia and Lleida are the capitals that offer the highest profitability for investors buying a house to rent, with 8.3% and 8% respectively, followed by Huelva with 7.6%. In Madrid, profitability reaches 5.2% and in Barcelona 5.8%. Before 2024, returns are likely to increase in dynamic markets such as Madrid and Barcelona, while remaining stable or declining slightly in less-demanding areas.
New construction versus existing construction in Spain
In the market for existing homes, the personal circumstances of sellers can lead to some room for negotiation and ultimately to larger price adjustments. However, no adjustments are expected for new construction in 2024. According to real estate experts, new requirements for energy efficiency and sustainability will increase the costs of new materials. As a result, prices for new construction could even rise. Because no increase in supply is expected, there will be no major price drops, especially in cities with high demand. This may turn out differently for secondary markets with less demand where declines can be expected.
Foreign buyers in Spain
Foreign buyers are playing a greater role in property transactions, accounting for 22% of total sales, with coastal areas attracting the most interest. The most sought-after housing types among foreigners are apartments, followed by houses.
Most foreign buyers purchase property as their primary residence, followed by second homes and investments for rental purposes. The proximity to services, green spaces and coastal areas are the most appreciated aspects by foreign customers. About 30% of buyers require bank financing, while some seek it in Spain or their home country.
The expectation is that the demand for homes in Spain from foreign buyers will also remain at the same level in 2024. Mainly due to geopolitical tensions, interest from countries such as Israel, Russia, Poland and Scandinavia is increasing. Interest from America for homes in Spain will also remain high. Experts point out the parity between the euro and the dollar, the pleasant climate, lifestyle and property taxes as drivers behind this trend.