Sector Anticipates a Drop in Housing Demand and Adjustments in Values Less Severe Than the 2008 Crash

Author: Víctor Recacha @recachareports

The real estate market is easing off. This shift has already occurred in the United States, where home purchases have dropped by 20% compared to a year ago, with price declines expected to vary by region: hotspots like New York and California will be particularly affected. This trend has also been observed through a cooling of investor activity.

In Europe, the sector is still benefiting from the oasis created by cheap financing and mortgages, which have generated liquidity, and high inflation, which encourages saving. However, rising prices have forced the European Central Bank (ECB) to tighten credit, or at least make it more expensive for the first time in 11 years, with a half-point increase in interest rates, which is expected to continue rising at a “steady pace” in the coming months, according to the monetary authority.

Falling Demand

“The adjustment will be moderate, but it will happen,” says Emiliano Bermúdez, Deputy General Director of Donpiso. “We don’t anticipate any collapse or burst of a non-existent bubble, but when issues affect consumption, the volume of transactions decreases,” he explains, referring to economic turbulence. In 2023, he foresees a 20% drop in housing demand and a “price adjustment that may accelerate starting from the first quarter.”

His forecast is similar to that of Òscar Gorgues, Manager of the Cambra de la Propietat Urbana de Barcelona. “If interest rates rise, there could be fewer transactions,” he notes, which would lead to a price decrease that will be limited in magnitude and duration. “Unless the crisis is very severe, the increase in rates is unlikely to significantly impact prices,” he estimates. Both executives agree that the price decline will mainly affect the secondary market, as the lack of new construction will preserve its value.

Luxury Market Holds Steady

The platform Inviertis, specializing in real estate investment, indicates that after months of growth, “prices will stabilize.” Its CEO, Rebeca Pérez, specifies that “it is normal to see corrections in the housing market after a period of normal increases following the pandemic.” “We are in an uncertain macroeconomic environment and it’s too early to determine what will happen. If nothing changes, I still see considerable liquidity in the sector, especially in the investment segment,” she emphasizes.

Bermúdez believes that markets like the Costa Brava and second homes on the Mediterranean coast will suffer the most, as “when adjustments occur in the market, they affect non-essential products.” This means that the vacation home market “will start to suffer in terms of transactions.” Other construction sector sources point out that high-end properties will maintain solid demand—cheaper ones are more dependent on mortgages. They admit, however, concern about “the possibility of a recession,” and are preparing for worse months following an “excellent” cycle.

Different from 2008

Real estate sources consulted dismiss a catastrophe of the magnitude of the 2008 housing crisis. The situation differs, and prices are not as inflated as they were during the bubble 12 years ago. Since then, prices have recovered but have not multiplied as quickly as they did back then.

Banks have also issued reassuring messages. Bankinter has highlighted that there are no signs of overheating in housing despite the price slowdown, while Ibercaja has noted the “good health” of the Spanish market with mortgage signings still at high levels. Real estate prices are starting to cool, but their evolution still offers investors more stability than many financial products.