Housing prices in Spain continue to rise. They increased by 7.6% in the third quarter of the year and are now just 5.2% below the peak levels from the boom.
Author: María Hernández

Source: El Mundo

The slowdown that is beginning to emerge in the Spanish real estate market is far from the bubble threats looming over other major economic powers. However, many people hope that this slowdown will be the start of a significant drop in prices. Unless there is an unexpected turn, forecasts do not anticipate this scenario, and the reality also does not point in that direction.

Housing prices in Spain continue to rise. They increased by 7.6% in the third quarter of the year, according to the Housing Price Index (IPV) from the National Statistics Institute (INE). Although the growth has slowed compared to previous quarters, the average cost of houses in the country is approaching the peak recorded during the 2008 real estate bubble. Specifically, prices are just 5.2% below that level after rebounding by 51.1% from the cycle’s low, according to Ibercaja’s analysis.

The increase is more extreme for new homes, which have not only recovered the ground lost due to the 2008 financial collapse but are now 12.8% above the previous cycle’s peak. The strong demand from buyers following the pandemic and the lack of sufficient supply to meet this demand have combined over the past two years, marking a new golden era for Spanish real estate. This has resulted in price pressures that further hinder property access for a segment of the population.

“The rise in production costs for housing, along with the caution of developers, seems to be affecting supply, as the number of new construction permits has dropped to 108,000 over 12 months, from 112,000. Additionally, the number of completed homes is beginning to reflect the slowdown in activity caused by the pandemic. These housing production levels are lower than the annual increase in the number of households (more than 200,000 in the past year), which, once the excess unsold homes from the real estate bubble are corrected, suggests a period of housing scarcity. This situation, coupled with the absence of overvaluation, could support property prices even if the number of transactions declines,” says Santiago Martínez Morando, Head of Economic and Financial Analysis at Ibercaja.

The scarcity of new stock to meet rising demand has shifted many buyers towards the second-hand market, which is also reflected in prices. Used homes, in fact, became 7.8% more expensive in the third quarter of the year compared to the same period in 2021. This increase is higher than that of new homes (6.8%) and represents a 49.3% rise from the lows of the 2008 crisis. Unlike new homes, second-hand properties remain 15.9% below the peak of the real estate bubble.

“At the moment, the main obstacle to the healthy development of the market is the scarcity of stock. According to Fotocasa, we estimate that housing supply has decreased by more than 35% compared to the previous year, causing a significant imbalance between supply and demand, while the demand for buying property remains very intense in our country. This situation creates tensions and hinders a correction in prices,” explains María Matos, Director of Studies and Spokesperson for the real estate portal.

Forecasts suggest a market moderation in the coming months that will eventually affect prices in the form of a correction, but not major drops. The increase in interest rates and the Euribor, the deterioration of economic outlooks, and rising inflation that erodes household purchasing power are expected to reduce demand in the coming months, while prices are also expected to decrease. ING analysts predict a 1% increase for 2023, compared to 2% forecasted by BBVA Research, far from the corrections seen in previous crises.