Standard & Poor’s has revised its estimates upwards and predicts that housing prices will rise nationwide by more than 11% until 2027

Gabriel Santamarina

Source: Expansión July 21, 2024

The first drop in interest rates executed by the European Central Bank (ECB) last June from 4.5% to 4.25%, has had its collateral in housing: the different analysis houses, financial entities, appraisers and firms in the sector are beginning to glimpse the end of the recessionary period that the market has registered since the ECB began raising rates in March 2022. The latest has been the North American rating agency Standard & Poor’s, which estimated a 0.3% drop in prices in 2024 and, in its latest report, has changed its forecasts to increases that will be around 4% in the year. It has also improved its forecasts for 2025, from 1.5% to 3%, 2026, from 2% to 2.4%, and maintains those for 2027 at 2%. This represents an accumulated increase over these four years of 11.4%.

According to the housing price index of the National Institute of Statistics (INE), between January 2022 and March 2024 (latest available data), housing prices in Spain have risen by 10%, despite the tightening of monetary policy. The cause, according to the opinion of most experts, is the low supply available on the market and the high demand, which causes price tensions. In addition, at the macroeconomic level, Spain has positioned itself among the economies in the euro zone with the best growth rates and employment is at an all-time high, which has prevented a cooling of the market.

Despite the increases in recent months, growth rates, measured on an annual basis, have been decreasing. However, if the ECB activates a new reduction in rates, this will translate into a reduction in the price of mortgages. “If the forecasts of a de-escalation of interest rates are met and two more decreases occur in the second half of the year, we will once again see how access to housing improves by lowering the conditions for access to mortgage credit and how the demand that was kept on hold will return to the market with force, also driven by aid for purchase in the form of public guarantees that will play a key role in the second half of the year,” the real estate portal highlights in one of its latest studies.

This situation has also caused Bankinter, the entity that had the worst forecasts for housing prices, to revise its estimates upwards: in its June report it raised the expected increase to 3%, compared to the negative 2% it had previously published. What reasons does it give? The shortage of supply, the sharp rise in rental prices, interest rate cuts and the strength of the labour market. The latter was also highlighted by S&P, which noted: “The labour market is proving more resilient than we expected, which has meant that house prices have performed better than we anticipated and that mortgage lending has recovered faster than in previous cycles.”

A rebound in home sales?

In the last two years, following the rise in rates, the dynamism of the sector has declined, even though prices have continued to rise. Between January and May, the INE has recorded 249,124 transactions, 4.15% less than the same period in 2023 and 8.72% less than in 2022. CaixaBank Research, the bank’s economic analysis firm, highlights that, despite the declines, “this is a high level of activity, taking into account that it remains 34% above pre-pandemic activity levels”. Until April, the numbers were better than those recorded in the same months of 2023, but the May figure was especially negative. Despite this, Sociedad de la Tasación, one of the country’s leading home appraisal firms, believes that the market could be facing a change: “The reduction in sales – in cumulative terms over the last twelve months – has eased slightly during the first four months of 2024. This possible turning point in the real estate market at the beginning of the year could now give way to a second half of recovery and an incipient expansion of real estate and mortgage activity.”

Beatriz Toribio, general secretary of the Association of Developers and Builders of Spain (APCE), believes that, in the short term, the lower cost of financing “will generate more tension in prices” due to the imbalance of supply and demand: “Many potential buyers and investors have postponed their purchase decisions while waiting for this relaxation of rates in the second half of the year.”

The Spanish Association for Value Analysis (AEV) has also detected a change in trend: a 4% increase in the volume of mortgage appraisals of homes and an increas