Since the second quarter of 2021, the housing market in Spain has experienced uninterrupted growth. However, that growth looks set to take a breather in 2024. Although, according to experts consulted by RTVE.es, it will be a slight decrease.
It could be the first time in more than two years that they are falling, at least in some Spanish cities. The decline will level off again and prices may return to initial levels in the coming months.
For households, the financial effort to pay for housing remains significantly higher. This is mainly due to the rise in inflation and interest rates. Mortgages have risen by an average of €117 per month over the past year.
As a result, the purchase and mortgage market will continue to show a downward trend in 2024, at least until interest rates start to fall, which is expected to happen in the second half of the year.
Buying and selling: fewer transactions and a different buyer profile
The purchase and sale of homes has fallen for nine months in a row, and in the last four months even by double digits. Housing platform Pisos.com assumes 580,000 transactions in 2023. This is 10% lower than the year before, when the market peaked and reached levels not seen in 15 years.
In the first quarter of 2024, this “scenario of moderation” will continue, according to Ferran Font, director of research. After that, the decline will recover, and will reach 4%, resulting in about 550,000 transactions.
Director of real estate platform Fotocasa, María Matos, states that transactions have not fallen as much as expected. Where the traditional buyers withdrew due to the increased tariffs, the ‘solvent citizens with a high socio-economic level’ took their place. These buyers are less vulnerable to European monetary change because they need less bank financing and have greater purchasing power.
In fact, Fotocasa has already seen a five percentage point increase in the number of buyers applying for mortgages and using family help or savings. Demand therefore remains high and the expected price decline has not yet started. On the contrary, in the third quarter – the latest available data – the cost of free housing rose by 4.5% year-on-year, mainly thanks to new construction, which rose by 11% and recorded the highest growth in 16 years.
Tightening of loans and supply of new construction
“The main reason is the tightening of financial lending, ‘which increases the developer’s risk and slows down production,’ says Matos. She adds that “the lack of land, the slowness of bureaucracy, the increase in construction costs by about 25% and the lack of labour make it very difficult to build more housing. Matos therefore expects the prices of new construction properties to continue to rise in 2024, ‘taking into account the fact that the stock is open at an all-time low’.
Existing home prices “are already showing signs of moderation,” according to Fotocasa, with a year-on-year increase of 6.2% in November, that is, the most moderate increase of the year. This price increase will continue during the first quarter of 2024, albeit in a more moderate manner (…) Especially in the communities with lower demand and less tourist appeal,” the expert adds. However, she warns that these will not be final price declines because, after the abnormal increases, “the price will simply return to where it started.”
Overall, mortgage payments will continue to decline in 2024, albeit at a slower pace that coincides with the improvement in financing conditions. According to Pisos.com’s forecasts, the year 2023 will end with around 380,000 signatures, which is 18% less than the previous year. This number is expected to drop to about 330,000, 11% less. Pisos.com predicts that blended mortgages will continue to gain ground.
At its last meeting, the European Central Bank (ECB) decided to keep interest rates at 4.5% for the second time, after inflation in the eurozone bottomed out in November. And markets are already pointing to the first rate cuts in the second half of the year.
This is already noticeable in the 12-month Euribor, the main mortgage rate in Spain, which showed a trend reversal in the last months of 2023. In November, it fell to 4.022% for the first time, and in December, it recorded its biggest monthly decline since finds 2009, to 3.679%.
However, the regulator does not mince its words. The uncertainty about the international context, where the consequences of the Russian invasion of Ukraine are now amplified by the consequences of the war in Gaza, could once again have an impact on prices and on the confidence of companies and companies, forcing the body led by Christine Lagarde not to let its guard down.
Rents more expensive due to scarcity
As far as renting is concerned, the news is less optimistic. According to the Fotocasa analyst, “the rental industry is experiencing one of its most complicated moments” due to a “significant imbalance between supply and demand.” ‘Renting has never had such a limited supply as it does now,’ says Matos. This mainly affects prices, which “show an intense escalation in the first half of the year 2023. At the national level, the historical maximum price of €11.69/m² was reached, surpassing even the figure of the 2007 bubble,” he adds.
There doesn’t seem to be any sign of improvement. The forecast for rents next year is an increase of more than 5% year-on-year, according to data from Fotocasa. Pisos.com estimates the increase at 1% to 7%.
Thus, in 2024, renting will be the housing solution chosen by the majority of families who have not been able to buy a house in time, who decide to wait because of the rise in interest rates, or by young people who cannot afford it because of their working conditions.
Added to this are the consequences of the Housing Act, the balance sheet of which is “unfavourable” for the sector, because, according to Matos, it has brought uncertainty and dissatisfaction. The regulation, which has been in force since May 2023, will have to be worked out in the coming months when the government establishes the reference index for setting prices in areas under pressure, one of its main measures.
For now, the experts see it as “positive” that the government has created the Ministry of Housing, which, according to Font, “already indicates the importance it will have and will have during this period of government.”