S&P Foresees a Real Estate Price Adjustment That Could Last 10 Quarters

Source: elEconomista.com

The number of property sales fell by 8.2% year-on-year last November, reaching 58,942 transactions, while the average price per square meter was €1,570, up 1.2% compared to November 2021. This marks the third consecutive month of price slowdown, according to data from the General Council of Notaries published this Thursday.

These warnings coincide with the report released Wednesday by the rating agency Standard & Poor’s, which forecast declines in real housing prices (adjusted for inflation) for this year.

S&P’s report highlighted that there would be “a decrease, but not a crash, in housing prices across most European countries during 2023 and into 2024 for some, with few or no prospects of a significant rebound until 2025.” S&P’s projections show a market that will be virtually frozen in the coming years.

Interest rates in the Eurozone are expected to remain high for the next few years. The difficulty in bringing inflation back to the 2% range will force the European Central Bank to maintain a restrictive stance in its monetary policy, making mortgage credit more expensive.

“This is because housing prices and investment are likely to suffer from the rapid rise in mortgage rates. It will take time for market prices and investment to fully adjust to these higher interest rates, and some countries will take longer than others,” the report stated. Notably, S&P predicted an adjustment that “could last up to 10 quarters and is generally twice as pronounced as after a period of low rates.”

By Property Type

Sales of apartments fell by 7.5% year-on-year, totaling 44,796 units, while sales of single-family homes dropped by 10.4% year-on-year, amounting to 14,146 units.

Real-Time Prices

Returning to the notaries’ report, it shows that apartment prices increased by 0.6% last November compared to the same month in 2021, reaching €1,747 per square meter, while the average price for single-family homes was €1,264 per square meter, up 2.5%.

By autonomous communities, property sales decreased in 15 of them year-on-year, with increases only in Extremadura (+1.5%) and Castilla y León (+1.3%).

The most significant declines were in Navarra (-37.4%), La Rioja (-30.4%), Cantabria (-22.9%), Asturias (-16.9%), Balearic Islands (-16.7%), and Castilla-La Mancha (-15.5%).

Nationally, the price per square meter rose by 1.2% year-on-year last November. Prices increased in eleven communities and decreased in six, mainly in La Rioja (-9.4%) and Castilla-La Mancha (-7%).

The largest price increases were recorded in Cantabria (+19%), Canary Islands (+13.4%), and Madrid (+10.9%).

Mortgage Loans Decline

Mortgage loans for property purchases fell by 8.5% year-on-year last November, totaling 28,391 transactions. The average amount of these loans remained stable at €147,833. The rise in interest rates is reducing the appetite for buying property through mortgages.

The percentage of property purchases financed by a mortgage was 48.2% last November. Additionally, for these financed purchases, the average loan amount represented 71.8% of the price.

Regionally, mortgage loans for property purchases only increased in the Valencia Community (+0.8% year-on-year) and decreased in other regions, primarily in Navarra (-28.3%), Murcia (-24.1%), and La Rioja (-18.6%).