November closed with a year-on-year sales increase of 10.8% and was the best month since 2007. However, these transactions were not affected by the interest rate hikes in October and December.

Author: ROBERTO L. VARGAS @robertolvargas

Source: La Razón

Far from knocking the sector down, the interest rate hikes approved by the European Central Bank (ECB) in recent months are spurring property transactions. According to data published today by the National Institute of Statistics (INE), November ended with a monthly increase of 6.8% in the number of transactions and a year-on-year increase of 10.8%, totaling 55,132 transactions—a figure not seen in this month since 2007, just before the real estate bubble burst.

With November’s data, 2022 has already surpassed 600,000 transactions, making it the new “golden year” following the boom of 2007. This is despite the shift in monetary policy by the ECB to curb inflation. What seemingly should have been a brake has, in fact, been pushing demand in recent months as buyers try to anticipate the impact of these interest rate hikes on mortgage costs. Experts believe the effects will start to be noticeable in transactions agreed upon in the last months of the year.

Although the INE statistics refer to mortgages registered by property registrars in November, these are actually transactions closed several weeks earlier. As María Matos, spokesperson for the real estate portal Fotocasa, explains, “The purchases closed in November did not yet face the interest rates of October because these transactions typically take between 60 and 90 days to complete, from the signing of the preliminary agreement to the granting of the mortgage. Therefore, it is likely that the transactions finalized in November had interest rates similar to those of September and were not yet affected by the increases, as they were initiated earlier.” September started with interest rates at 0.5%. However, that month, the ECB raised them to 1.25%. Later, another 75 basis points increase was approved in October, raising them to 2%, and in December, they were raised to the current 2.5%.

“This high figure for November reflects a rush by citizens to buy in an attempt to avoid the tightening of credit conditions,” Matos emphasizes. In fact, she feels that “the runaway inflation we are experiencing will gradually start to impact household budgets, and the capacity to save will be reduced due to significant increases not only in energy and fuels but also in the cost of groceries. This may eventually lead to less savings for home purchases, which could moderate the housing market.”

Ferran Font, head of studies at Pisos.com, believes that the first declines in transactions might be seen at the end of the year, as the market, although still rising, grows with less vigor. In this regard, Font highlighted that in three regions—Baleares, Murcia, and Cantabria—transactions have already declined compared to November 2021.

In line with Pisos.com and Fotocasa, Francisco Iñareta, spokesperson for Idealista, has stated that “the figures are already showing signs of deceleration, though it will not be until the next statistics are released that we will see the impact of the increased financing costs that occurred in the last months of 2022. It is very likely that in the coming months we will see the market beginning to contract due to a change in cycle and the greater difficulty in accessing mortgage financing.” Iñareta believes that “the reduction in the number of transactions will cool prices during 2023, although it is very unlikely that we will see widespread declines.”

New Homes

The decline in transactions is already a reality in the new housing market. In November 2022, there were 9,933 transactions involving new homes, representing a 3% decrease compared to 2021. This decline is related to the shortage of new housing supply. “New construction housing has been experiencing unprecedented growth since the pandemic began. However, we may face a serious issue of rising prices if demand remains so high. This is due not only to runaway inflation, which affects the cost of materials, production, and logistics—resulting in delays and stoppages in some developments—but also to the strong and solvent demand for new homes against the low production levels,” explains María Matos.

The lack of product is causing markets such as Madrid and Barcelona, where shortages are even greater, to see new developments sell quickly. According to Sociedad de Tasación, new homes barely stay on the market for 15 days.