Why don’t house prices in Spain fall with lower sales figures?

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house sales

Although house sales in Spain fell by 5.4% in the first quarter of 2024, property prices actually rose by 4.3%. This has led to an average house sales price of almost €1,866 per square metre.

This increase seems contradictory, but experts point to a limited housing supply and rising mortgage rates as important factors. José García Montalvo, professor at Pompeu Fabra University in Barcelona, ​​states in El Pais that the limited availability of housing is the main cause of the price increase. “If fewer houses are sold, it does not mean that there is no demand, but that supply is limited,” Montalvo said.

Increase in mortgage rates

In addition, the increase in mortgage rates plays a crucial role. Gonzalo Bernardos, director of a real estate master’s degree at the University of Barcelona, ​​explains that the increase in official interest rates by the European Central Bank has led to more expensive mortgages. This has changed the profile of buyers. The middle class has been replaced by the upper middle class, who can afford more expensive homes without a loan.

Also read: Increasing number of houses in Spain are sold without a mortgate

Impact of the new construction market

Beatriz Toribio, Secretary General of APCEspaña, notes that limited new construction production is also contributing to rising prices. “Production of new construction is very limited. And what is built is sold to very solvent buyers who do not need financing,” Toribio says. This dynamic is spreading to the second-hand market, especially in popular areas such as tourist zones and big cities.

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Regional differences

Price increases have been most pronounced in Madrid and the Balearic Islands. There house prices have reached their highest levels ever. In Madrid City, prices have exceeded €4,000 per square metre, while some areas in the Balearic Islands, such as Santa Eulària des Riu, even exceed €5,000 per square metre.

Also read: Real estate bubble in Madrid bigger than expected

Lack of new construction

Despite the high demand for housing, new construction is lagging behind. According to an analysis by CaixaBank Research, the number of new construction permits is lower than the creation of new households. This results in an even greater housing shortage. The slowness of urban development projects and delays in obtaining building permits are often cited as causes.

Mortgage war

Bernardos sees a possible long-term improvement if the ECB cuts interest rates, which could encourage banks to lend more. “The second half of this year could be the start of a major real estate boom, driven by a mortgage war,” he predicts. This would give more people the opportunity to buy a home, although a drop in prices is not expected in the short term.

Also read: Declining trend in home sales continues in March


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