Tough Stance by the ECB Drives Euribor from 1% to 1.5% in Three Weeks
Author: Ingrid Gutiérrez

The supply of housing is becoming increasingly scarce, and demand continues to rise at a much faster pace. This phrase is repeated like a mantra in conversations with various real estate agents working on the ground for several renowned firms in Madrid. Indicators show that this is the same situation faced by buyers in other major cities in the country, such as Barcelona or San Sebastián, as well as in regions like the Balearic Islands. The frenetic activity around real estate reminds one of the period before the bursting of the property bubble; however, the current situation is scarcely comparable to that of then.

Neither the constant rise in the Euribor—which has accelerated in recent weeks to levels not seen since 2012, coinciding with the first hike in official interest rates in over a decade—nor the uncertain economic climate are yet reflected in buyer sentiment. In fact, real estate agencies themselves report that some people are advancing their decisions to avoid rising costs expected in the coming months, as the European Central Bank implements its roadmap to control inflation. The inflation rate reached a peak of 8.9% in July since the creation of the euro, according to Eurostat data, fueled by energy and food costs, summer leisure and tourism expenses, as well as the weakness of the euro.

The number of mortgages granted increased by 12% in June compared to the same month last year, reaching 42,767, and the average loan amount for purchasing a home rose by 6% (to 147,539 euros). Recent data from the National Statistics Institute (INE) shows that over the past year, 453,000 such loans were signed with an average amount of 142,600 euros, totaling 64.6 billion euros. “We have to go back to 2011 to find higher figures for granted mortgages and total amounts, and to 2008 for average amounts,” notes Santiago Martínez Morando, Head of Economic and Financial Analysis at Ibercaja.

The ‘Tough Stance’ at the ECB Propels the Euribor from 1% to 1.5% in Three Weeks

Reports from the Bank of Spain reveal that the stock of active mortgages increased by 1.3% year-on-year in June, confirming the trend change observed since last year: the outstanding balance has grown again (thanks to new concessions exceeding maturities and repayments) after a decade of adjusting the real estate bubble. Information from the College of Registrars supports this direction. Between June 2021 and the same month this year, a total of 626,345 property transactions were registered, the highest figure since the third quarter of 2008, significantly surpassing pre-pandemic results that showed just over 520,000 transactions annually.

And all of this while property prices continue to rise. This upward trend is significantly influenced by the performance of the second-hand housing market, which represents eight out of ten transactions and is considered a more accurate indicator when analyzing the current market situation—the purchase agreements for new homes are finalized with an average lead time of two years. In the second quarter, properties increased in price by an average of 2.4% compared to the first quarter, reaching 1,957 euros per square meter. Used homes rose by 3.4%, while the price of new homes fell by 0.7%.

In the latest housing market report presented by Tecnocasa and the Pompeu Fabra University (UPF) of Barcelona, its coordinator, Professor José García Montalvo, insisted that our housing market is in better shape than other European markets and that the high volatility in the stock markets could contribute to the transfer of resources and investment towards real estate, which is often considered a safe haven by investors.

What’s Happening with Housing Prices in the Rest of the EU?

In the rest of Europe, uncertainty has not undermined—the data available to date—the good streak the sector is experiencing. In terms of prices, increases have continued despite the war in Ukraine or economic tensions. The average annual price increase in the Old Continent was 12.9% in the first quarter of 2022. However, while prices have continued to rise generally, some divergences in growth rates are emerging, as explained by the rating agency Scope Ratings.

The price surge is especially evident in Central and Eastern Europe, with the Czech Republic leading (24.7%), followed by Hungary and the Baltic countries. This contrasts with countries like Italy and Finland, which have more moderate rates, both under 5%. “We expect this trend to continue in the coming quarters, as European housing markets will expand further,” the firm points out.

Their experts believe that the rise in mortgage rates following the ECB’s first rate hike in over a decade will not necessarily prevent housing costs from continuing to rise. The Czech Republic is again the most evident example. Mortgage rates in the country have climbed to 4% from a low of 2% at the beginning of last year. Despite the doubling of mortgage rates, property prices have increased by more than 30% in that same period. “The only thing that will cool the market will be new rate hikes combined with the reintroduction by the Czech National Bank of restrictions on mortgage loans, including limits on loan values and debt service capacity,” the same experts point out.