If You’re Thinking of Getting a Mortgage, Here’s What Will Happen to Mortgage Prices and Housing Prices in the Coming Years

Source: Economía Digital

If you’re considering taking out a mortgage and buying a house, you might be wondering if now is the right time. The Euribor rate surged to 2.233% in September, its highest level since January 2009, which will lead to an increase in mortgage payments, adding approximately €2,400 per year. The question many potential buyers are asking is: what will happen in the coming years?

Analysis of Housing Prices in Spain

According to Bankinter’s quarterly economic forecast report, housing prices are expected to enter an adjustment phase (-5% over 2 years).

Read More: What Salary You Need to Afford a Mortgage According to Your Region

After a year in 2022 with rising housing prices (+5% estimated), they are expected to enter an adjustment phase. Forecasts predict declines of -3% in 2023 and -2% in 2024 (compared to +1% and 0% previously estimated). This, combined with slightly higher wage increases (>2%) in an environment of high inflation, should be sufficient to correct the overvaluation compared to wages.

The ratio of housing prices to household income is currently at 8.3x, slightly above the historical average (20 years) of 7.5x, according to data from the Bank of Spain.

Key Drivers of This Adjustment Include:

• Higher Cost of Mortgage Financing: The 12-month Euribor has risen from -0.50% in December 2021 to +2.50% now. Market forecasts expect it to be above 3.4% in the next 12 months. This translates to an increase of more than €350 per month for a new mortgage (average of €144,000 in Spain). Consequently, the effort rate will rise significantly above the historical average of 35% (compared to 33% in December 2021).

• Lower Household Savings Rate: High inflation on basic consumer goods, such as energy and food, reduces households’ purchasing power, leading to lower savings rates. Wages increased by +2.2% in Q2 (year-on-year), well below inflation (+10.5% in August).

• Increased Spanish 10-Year Bond Yields: The significant rise in the yield of the Spanish 10-year bond reduces the attractiveness of investing in rental housing. The gross rental yield for housing in Spain remains around 3.7%, while the yield on the Spanish 10-year bond has increased significantly (3.10% now vs. 0.55% in December 2021). This reduces the yield differential to 60 basis points, slightly below the average of the past 20 years (70 b.p.).

On the other hand, real estate activity is expected to cool from 15-year highs (610,000 housing transactions in 2022). Forecasts suggest a decline of -18% over 2 years (-13% in 2023 and -5% in 2024), stabilizing at around 500,000 transactions per year in the future.

Our forecasts for Spain indicate a smaller adjustment than what the ECB anticipates for the Eurozone as a whole. The ECB estimates that interest rate hikes will lead to a -9% decline in housing prices and a -15% decline in housing transactions.