Why rising interest rates are not yet curbing house prices and housing demand in Spain
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Loading... - Patricia Turner
- 22 Feb 2023
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Since inflation began to rise in Spain and across Europe, many news headlines and expert opinions warned that demand for housing would slow down and that the price would correct its upward trajectory. However, the pressure of demand on supply grew in 2022 and reached higher levels than those reached in the previous two years, according to idealista/data. Without going any further, in December 2022 it increased by 0.11 points compared to December 2021. And Madrid is the winning province, the one with the most demand pressure for housing for sale. The price of property in Spain has also continued to rise: in January prices grew by 5.4% compared to a year ago.
So what is going on? Who is buying houses in Spain in the midst of rising interest rates? According to the latest survey carried out by idealista/data on more than 4,000 people, 70% of those who want to buy a home already own at least one house. This means that many people buy a house for replacement purposes, i.e. they already own a house, but are looking for a different one. Specifically, of the people surveyed, 19% are looking for another home with improved characteristics; 17.4% are buying for investment; 14.7% are looking for a second home; 14.3% want a larger home, and 6.2% want a smaller one.
Jesús Gil Marín, CEO of the real estate company Gilmar, maintains that with investment in housing it is still possible to obtain returns that are above the price of money and this may be motivating the market to remain active. "In addition, foreign investment is helping to stabilise prices, especially citizens from Latin America - given the political uncertainty in certain countries - who are opting for Spain for obvious reasons such as cultural, linguistic and even gastronomic identity," he adds.
In addition, home seekers are solvent. Almost 50% of those surveyed do not need a mortgage, or if they do, it is for less than 50% of the value of the property. In other words, there is not so much dependence on a financial institution. 32.2% need a mortgage between 50% and 80%, while 13.9% need a loan of more than 80%. Only 5.6% need a 100% mortgage.
Economist Miguel Córdoba points out that people who depend on a mortgage will be affected by the rise in the cost of loans. However, this expert stresses that the average amount of mortgages is currently around 179,000 euros, which contrasts with 258,000 euros in 2007, "without taking into account the 29.25% inflation that has occurred in these fifteen years, which would mean that the average amount in real terms of a mortgage is currently 54% lower than it was before the property bubble burst". Read More…
