Why Spain’s housing market is set to cool this year
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Loading... - Justina Torres
- 11 Apr 2023
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A downturn is expected in the Spanish property market due to the rise in interest rates and tighter credit conditions, which could cause property prices to stagnate this year.
However, a crash like the one seen during the financial crisis seems unlikely. The market is still expected to outperform the eurozone average thanks to robust demand.
House price growth to stall next year
Despite the sharp rise in interest rates and economic uncertainty, Spanish house prices rose by an average of 7.4% in 2022, Eurostat figures show. However, this trend is expected to end in 2023. The favourable tailwind of falling interest rates has reversed over the past year. Moreover, it is anticipated that credit conditions will become stricter, and interest rates will continue to increase in 2023, ultimately slowing down the property market's momentum. We forecast that property prices will remain stagnant throughout 2023, with a possible decline in the first half of the year. While the nominal price decline will be limited, the price decline in real terms is likely to be much larger: inflation-adjusted house prices are expected to fall by 7% in three years, from 2022 until 2024.
Moreover, even after 2024, it is unlikely that house prices will continue to rise as rapidly as in recent years, as the leverage of falling interest rates has disappeared. Over the past 10 years, mortgage lending rates have fallen continuously, resulting in an increase in household borrowing capacity that has outpaced income growth. However, this trend ended abruptly last year with the sharp rise in interest rates. Since we are unlikely to return to the extremely low interest rates of the past, this may mark the end of the rapid price growth seen over the past decade. Read More…
