Author: yaencontre
Source: Idealista
Housing prices saw a widespread increase in 2022, but many indicators and experts predict that prices may start to fall this year. The real estate market will depend on how factors like the economy or the war in Ukraine evolve. How much will housing prices drop? Declines could reach up to 10%.
According to Jesús Duque, vice president of Alfa Inmobiliaria, the real estate market will continue to polarize. “We expect price drops in medium and low-medium priced homes, whose typical buyers are families most affected by general economic uncertainty and the rising cost of living.”
Therefore, this price reduction will not be widespread. He believes that this reality coexists with a very different one: the luxury housing market, whose prices and number of developments seem to keep growing. “It is true that this type of housing does not exceed 12% of the total, but it is noteworthy that this product segment continues to be in full swing, often driven by the growing arrival of fortunes from other countries, in many cases Latin American, interested in investing – or staying to reside – in our country,” Duque points out.
The latest data from the XIII Real Estate Barometer of UCI and SIRA indicate that more than 61% of these professionals believe housing prices will drop to some degree by the end of the year and the beginning of 2023. “We are not talking about a very sharp decline, but a moderate one, around 5-10%, according to half of the agents,” says José Manuel Fernández, deputy general director of UCI.
This vision of moderate price declines is increasingly pointed out by agents and is expected to be the scenario that marks home buying and selling at the beginning of 2023.
In Which Quarter Will Housing Prices Start to Drop?
Alfa Inmobiliaria estimates that in these first months of the year, the decline in activity and prices could be around 3%, possibly extending throughout the year and rebounding in 2024. “But as long as demand greatly exceeds supply, we do not expect the decline to be much greater.”
They point out that this can happen due to the enormous tensions worldwide caused by the war in Ukraine. “80% of buyers are middle and lower-class, very affected by rising interest rates, the general cost of living, the tightening of access to the mortgage market, and growing doubts about the immediate future of the job market. All this means that, in many cases, despite the need, such an impactful decision on the domestic economy as buying a home is being postponed.”
For UCI, making long-term predictions about housing prices is complicated because it largely depends on the general economic context. “If, throughout the year, exogenous problems in the sector (end of the war in Ukraine, inflation decrease, interest rate moderation, etc.) disappeared, the market would return to the pace we have seen since the post-pandemic recovery.”
Why Will Housing Prices Drop?
The main reason is that the demand for housing is decreasing while the supply of sellers is increasing. According to UCI, this edition of the barometer has perceived that a gap is opening between supply and demand, with more sellers and fewer buyers, “which will lead to a price adjustment in the medium term, especially in areas where demand is lower.”
The other major factor, undoubtedly, is the increase in interest rates and the consequent rise in mortgage costs, which will reduce the payment capacity of buyers who need financing (approximately 50% of market transactions).
Will It Be the Right Time to Buy?
UCI states that it cannot be generalized. “It will largely depend on the buyer’s profile. It is essential that purchase decisions are made thoughtfully and considering all aspects that impact family economies,” they affirm.
Now, real estate investment has always been seen as a safe haven, and currently, according to UCI, there are not many alternatives for small savers’ investment, who will continue to see real estate as a profitable medium and long-term opportunity.
Jesús Duque, for his part, recommends that anyone who wants to buy realistically assess whether a future increase in mortgages could negatively impact their financial situation. And consider which of the two options they prefer, “whether to buy now, at a higher price and lower interest rates, or vice versa. Because, as has already been officially announced, we are facing the first of upcoming interest rate hikes.”
