In its Latest Real Estate Report, CaixaBank Anticipates a 7.1% Drop in Housing Prices in Real Terms for 2023
Author: Ruth Ugalde
Source: elconfidencial.com
The housing market is set for a downturn. According to CaixaBank’s latest real estate sector report, the price of housing is expected to fall by over 7% in real terms—taking inflation into account—between 2022 and 2023. This represents a 7.1% decrease in real terms.
Just as workers who do not receive inflation-adjusted wages become progressively poorer, the full picture of the housing market remains incomplete if price evolution is discussed without considering the rising costs of money. Thus, CaixaBank’s forecast of housing price trends in real terms, rather than merely nominal terms, is highly significant. The difference between nominal and real values is substantial.
Housing Market Shows Signs of Exhaustion Amid Decline in New Construction Permits
While CaixaBank forecasts a modest 1% increase in nominal housing prices for the coming year, it predicts a 7.1% decrease in real terms for the 2022-23 period. This cooling trend is emerging even before clearer signs of reduced demand become evident.
This sharp change in trend is notable when compared to the numbers from various price indices until a few months ago. For instance, year-on-year growth for Q1 2022 ranged between 6.7% and 9.5%, and by Q3, the rate was still between 4.7% and 7.6%.
A 20% Drop in Transactions Expected
Despite CaixaBank’s bearish outlook, the bank avoids cataclysmic predictions and does not foresee a recession in Spain. Instead, it expects a significant slowdown in economic activity, limiting GDP growth to 1% in 2023, compared to the 4.5% growth anticipated for this year.
This slowdown is directly related to rising interest rates, which are making home financing more expensive and challenging, leading to a projected 20% drop in the number of property transactions to around 480,000. However, CaixaBank also provides a somewhat optimistic view, noting that this number is still above the 450,000 annual transactions averaged over the past 15 years.
Market Anticipates 10 Years of Euribor at 3%, Leading to Price Declines
Several factors that have previously buoyed the housing market, such as post-pandemic effects and easy financing, have dissipated. “The 12-month Euribor increased by approximately 330 basis points in 2022, and market-implied interest rates are expected to average around 3% in 2023. As most buyers require financing to purchase a home, this will directly impact demand,” explains the bank in its report.
Additionally, foreign demand, which has been significant recently, is expected to wane. CaixaBank predicts that key countries purchasing homes in Spain (the UK, Germany, and France) will experience strong economic corrections, reducing their investment in Spanish real estate. Foreign buyers purchased over 90,000 homes in Spain over four quarters up to September 2022, representing 14.1% of the total and exceeding pre-pandemic levels.
Conversely, a factor that may mitigate the decline is the continued limited housing supply, estimated at around 100,000 units, compared to the creation of more than 200,000 new households. Regarding construction costs, CaixaBank observes that the upward trend appears to have stabilized (14.7% year-on-year in September, down from a peak of 19.5% in May) and anticipates a moderation in construction costs for 2023, although they will remain higher than before the pandemic.
