Experts anticipate a moderation in prices but not a significant drop. Additionally, financing will continue to become more expensive.

Author: Alba Brualla

Source: El Economista

Is now the best time to buy a home? This is a common question for those interested in becoming homeowners or relocating.

The economic uncertainty clouds predictions about the housing market, and the possibility of housing prices starting to drop might deter potential buyers. But is it worth waiting for a price drop in a scenario of rising interest rates? Will there really be a widespread decrease in housing prices?

According to financial analysts, the average price of housing is expected to increase by 5% to 7% by the end of this year. For the next year, the trend is expected to continue, albeit at a slower pace. Experts estimate that increases will range from 1% to 1.7%.

It’s important to remember that these are average figures, and the residential sector in Spain operates at different speeds across various markets, with differences between second-hand properties and new builds. Nonetheless, experts consulted by elEconomista.es do not foresee significant price drops next year, except for occasional opportunities or in markets with very low demand.

“Looking at the market with the expectation of price drops is not a good strategy,” says Ricardo Sousa, CEO of Century 21 Spain and Portugal, who notes that “there is little supply and, therefore, fewer opportunities to find a home that meets the current needs of most Spaniards. As experts in this sector, our recommendation is that if there is a property on the market that meets your criteria, it would not be advisable to wait.”

Additionally, Sousa points out that “most transactions in the Spanish market are driven by changes in family structure. Therefore, for many, the need to buy a home is not about whether it is the perfect moment, but rather a necessity that cannot wait.”

“If we are looking for a first home and have a solid financial profile, we can still benefit from attractive fixed-rate mortgage products.”

Mikel Echavarren, CEO of Colliers, agrees that this is a “financially irrational purchase” and reminds us that “we have interest rates normalizing and they are not alarming; what was exceptional were the 0% rates. Today is a better time to secure a mortgage than it will be in six months.”

“We must come to terms with the fact that the era of free money, as seen in recent years, is over,” warns Beatriz Toribio, Deputy General Director of Masteos in Spain.

“If we are considering buying our first home and have a solid financial profile, we can still benefit from attractive fixed-rate mortgage products. If this home is new, prices in this segment are unlikely to drop due to limited supply and rising material costs. If it is a second-hand property and it is the home we want and can afford, the timing should not be a deterrent because while housing prices will moderate, they are not expected to fall.”

Furthermore, Antonio de la Fuente, Director of Corporate Finance at Colliers, highlights that “the Euribor rate has risen by more than 30%, and that will not lower home prices even in the best-case scenario. Those waiting for a bargain may not get it at the expected price.”

Rising Mortgages

Cristina Arias, Director of the Tinsa Research Service, explains that the ECB’s shift in monetary policy is gradually increasing mortgage costs and leading to stricter risk assessment criteria by financial institutions due to expectations of economic slowdown. Both factors make financing more difficult for both buyers and sellers.

“Still, it is expected that the rise in interest rates will moderate, as their ability to control inflation, largely supply-driven, is limited. This, combined with a solvent residential demand, balanced debt ratios, and new space preferences, leads us to expect moderation in demand without a severe contraction.”

For investment purchases, Toribio believes that “one should focus more on whether it is a good investment rather than timing. Our savings in the bank lose value as inflation rises. Therefore, investing in property serves as a refuge for savers, as it is a low-risk investment that can generate rental income and, in the medium to long term, will generally increase in value.”

Where Will Prices Go Up or Down?

The evolution of housing prices is a key factor when buying. Eduard Amorós Kern, Professor at the International University of Valencia (VIU), notes that price trends “will depend on market behavior.”

He suggests that we can discuss two types of markets: “In the first, where demand exceeds supply, such as in major cities, prices are likely to remain unaffected, or even paradoxically continue to rise or stay stable, as housing supply is lower than demand. Real estate speculation is prevalent, offering high returns for buying and renting properties or even individual rooms at high prices. In the second type, municipalities and areas with previously low demand where prices haven’t changed significantly since the last housing crisis could see a noticeable decrease in prices.”