Source: elEconomista.es

Following record housing sales figures in 2022, the uncertainty caused by high inflation and the war in Ukraine have tempered the optimistic outlook among real estate professionals.

Now, one of the most pressing questions in the sector is: What factors will shape the real estate market in 2023? Experts from UCI (Union of Mortgage Credits) highlight eight trends that will guide the sector in the coming months.

Interest Rates Won’t Exceed 3%

UCI suggests that the evolution of the Euribor will start to stabilize once it hits the 3% mark, provided inflation remains controlled. Long-term interest rates might decrease, though not to the levels seen in recent years.

“We’ve seen this trend in the American market, which often leads by six months, and it looks like inflation in the Eurozone, especially in Spain, will start to moderate throughout 2023,” explains José Manuel Fernández, Deputy General Director of UCI. “It doesn’t seem likely that interest rates will continue to rise because that would cool the economy and risk pushing us into recession,” he adds.

End of Fixed-Rate Dominance

The rise in interest rates has affected all terms. Not only has the Euribor, the main reference for variable-rate mortgages, increased, but fixed-rate mortgages have also risen proportionately. This shift has reduced the appeal of fixed-rate products, which had been predominant in recent years.

Price Adjustments in Certain Areas

The contraction in demand will lead to a slight decrease in housing prices in areas with substantial real estate supply. However, areas with strong demand, whether from homebuyers or investors, including international buyers, are unlikely to see price drops.

“In Spain, we experienced a significant price adjustment between 2008 and 2014, and most areas have not yet recovered to the levels seen in 2007. Thus, we don’t anticipate significant price drops in any market. In fact, in the most strained markets, we will continue to see moderate price increases,” says Fernández.

Reduced Demand and Longer Decision-Making

Economic uncertainty is causing many buyers to delay their property purchases, so demand is expected to adjust throughout 2023. The number of potential buyers is decreasing, and those who do purchase are taking longer to decide. As a result, housing transactions, which reached record levels in the recovery months after the pandemic, are expected to adjust and approach the figures of 2019, which ended with 501,085 transactions.

Dominance of the Second-Hand Market

With new construction stock scarce—down 0.9% year-on-year in September—the gap between second-hand sales and new builds is widening. According to UCI’s forecasts, this gap will become more pronounced throughout 2023. “The volume of new construction will remain moderate because high construction costs—due to rising material, energy, and labor costs—make new homes unaffordable for most buyers,” notes Fernández.

Renovation of Housing as a Growth Driver

Spain’s housing stock is among the oldest in Europe, with an average age of 40 to 50 years. Consequently, housing renovation will become one of the most dynamic markets, both in terms of transaction volume and job creation, largely due to the incentives from the Next Generation EU Funds. “However, raising awareness about the benefits of renovation and improving energy efficiency in the housing stock remains an ongoing challenge,” say UCI representatives.

Rising Rental Prices

The scarcity of rental properties will continue to drive up prices in 2023. This issue might be addressed through fiscal incentives that encourage the release of new rental properties and more affordable rents.

Difficulty for Young People to Access Home Ownership

Economic conditions have particularly impacted young people, who have seen their ability to purchase property significantly reduced over the years. An El Banco de España report warns that in 2011, 70% of people under 35 owned property, but that number has now dropped to 30%. “Achieving greater job stability among those under 35 and administrative support, similar to what is needed for rentals, will be crucial to reversing this trend,” says Fernández.

Despite these forecasts, José Manuel Fernández notes that “the Spanish real estate market is very robust and has significant momentum, so it is unlikely to change significantly in 2023 as long as employment levels remain stable and Spain continues to grow faster than the Eurozone.”

Additionally, UCI believes there are reasons to be optimistic about the short-to-medium-term future. “If external problems such as the war or inflation were to be resolved throughout the year, the real estate market would likely return to the strong pace seen in the post-pandemic recovery, where record highs were achieved in both sales transactions and mortgage formations.”