While home prices are expected to stagnate, rents will continue to rise. Idealista: “The factor that will shape the rental market will be the lack of stock. Prices could be set to keep increasing, making access even more difficult.”

Source: El Economista

The frenzied behavior of the real estate market is coming to an end. After years of strong growth in home prices, the market may now enter a new phase of cooling and moderation. However, the rental market might not follow this trend due to the extreme shortage of rental properties.

According to Idealista, “The ongoing conflict between Russia and Ukraine, the energy crisis, the rising cost of raw materials, and runaway inflation have clearly marked what seems to be a change in the real estate cycle. Although end-of-year data is very positive, we are already beginning to see signs of relaxation in trends, forecasting a more moderate 2023.”

Market Trends for 2023

The focus of the property buying market in 2023 will be on financing, which will be the center of sectorial, media, and possibly political debate. The European Central Bank’s rate hikes, including three consecutive significant increases, the rapid rise in Euribor rates, the cost of long-term bank financing in recent months, and its impact on new and existing mortgage holders will significantly influence the sector’s behavior in the coming year.

“We estimate a decrease in the volume of mortgage transactions for home purchases compared to this year. However, we will likely continue to see strong activity in switching from variable to fixed-rate mortgages (via subrogation or cancellation and opening of a new loan), which will mitigate the impact. Although fixed-rate mortgage conditions have become much more expensive, mixed-rate mortgages with more advantageous conditions have emerged strongly and are gaining ground. We believe they will continue to be one of the best options for consumers next year,” say experts from the real estate portal.

Decline in Sales

The most noticeable change will be in the number of property sales closed in 2023, which could see a reduction in transactions nationwide and a stagnation in the most dynamic markets. Nevertheless, it is important to remember that 2022 has been the best year for sales since the burst of the real estate bubble, ending with over 600,000 homes sold. It is possible that in 2023, the sector will return to around 500,000 homes sold in a year.

The available supply of homes for sale in the market will stabilize after falling by 7% in the last year. The time on the market will likely extend, and buyers will have more options to choose from. This process will not be uniform, and areas with less demand will experience the effects sooner and more intensely.

Prices grew significantly in 2022. Although there has been some cooling in major markets in recent months, prices will end the year positively in almost all cases. It seems unlikely that we will see widespread price declines in major markets in the coming months. Prices will probably stabilize and follow a steady path.

Rental Market Focus

Although government measures seem almost exclusively aimed at containing rental prices, the key factor influencing the rental market in 2023 will undoubtedly be the lack of available stock. “The rental property stock has continued to decrease since the end of the pandemic. In the last year, the supply has reduced by 25% in Spain, with higher percentages in more dynamic markets. While demand continues to grow, the supply of housing is being depleted without replacement of properties whose contracts have ended,” says Idealista.

Several factors may exacerbate this trend complicating rental availability: “The reasons for this lack of replenishment mainly lie in insecurity. On the one hand, the difficulty of recovering a property quickly in case of default or occupation. On the other hand, the legal insecurity caused by measures taken or announced by regional and central governments, which, instead of encouraging the emergence of new products in the market, contribute to their disappearance. Many landlords, once lease contracts end, decide to withdraw their properties from the market and put them up for sale,” they explain.

Moreover, this issue may persist for some time, further hindering any adjustment in rental prices: “There is no indication that this trend of decreasing available rental properties will reverse in the coming months, although an optimistic forecast might suggest a halt to the current bleeding. The current economic uncertainty could somewhat delay decision-making by potential tenants, which would prolong the time properties remain on the market,” they add.

The gradual tightening of supply has caused price tensions in major markets. Without policies encouraging new products in the market, prices may continue to rise, further hindering access to housing for those who need it most. However, the current price level, combined with inflation, reduces tenants’ ability to pay, which could freeze rental prices in some areas.

Challenges in Accessing Housing

All of this has implications for the well-being of families, especially those with lower income levels who are more vulnerable to increases in basic goods or services: “The scarcity of housing makes it difficult for disadvantaged families and new groups without economic problems but offering less security to landlords, such as freelancers or single individuals, to access housing. In many markets, the process of ‘casting’ tenants will become more common,” say Idealista.

The increase in prices has a direct effect on family incomes. The percentage of household income needed to cover the rent has increased in all provinces, rising from 26.4% last year to 29.4% this year. A total of 8 capitals now require more than a third of household income to pay rent.