75% of Spaniards Believe Housing Prices Are Overvalued, and 72% Find It Difficult to Become Homeowners in the Next Three Years

Author: Rafael Fernández

Source: La Razón

The war in Ukraine and rampant inflation have created a perfect storm for the real estate market, which will become evident in the coming months. This impact will be felt across all regions and cities, especially in places like Madrid, Barcelona, and San Sebastián, which have experienced continuous price increases in recent years and will now find it harder to maintain this upward trend.

According to ING’s forecasts, housing prices are nearing a peak and are expected to decline over the next two quarters. Uncertainty, rising interest rates, and a possible mild recession that Spain may face starting next quarter will slow down the increase in housing prices.

With an inflation rate forecast of 4.4% for 2023, the real price increase next year is projected to be negative (-3.4%).

A recent ING Consumer Research study reveals that 75% of Spaniards believe housing market prices are overvalued, and 72% find it difficult to become homeowners within the next three years.

According to the bank, recent data show that price increases are starting to cool off across the board, particularly in the Mediterranean coast, the Balearic Islands, and the Canary Islands, where the slowdown has been most pronounced.

ING’s report, which anticipates that Spain’s economy will enter a mild recession starting in the fourth quarter of 2022, also predicts that interest rates will continue to rise to combat inflation, with the Euribor likely reaching its peak by the end of 2022.

If the Eurozone enters a recession, the European Central Bank’s willingness to continue raising interest rates sharply will diminish. Consequently, mortgage rates, which have also risen significantly this year, are expected to follow a similar trend.

Specifically, the bank forecasts that “price growth will reach 7% in 2022,” but warns that “it will slow to 1% next year, meaning nominal price growth will not keep pace with inflation, which is expected to be 4.4% in 2023.” Thus, ING details that “real price growth next year will be negative (-3.4%).”