Year 2023 was an exercise in ‘impasse‘ in the real estate market. In 2021 and 2022, especially in the first half of the latter, there was a real ‘boom’, in the residential market, with record sales figures and a price escalation comparable only to the latest hits of the bubble. However, during 2023, and forecasts suggest that even in 2024, the market has entered a phase of deceleration, both in terms of transactions and price increases.
In 2022, 649,494 sales were closed, 15% more than in 2021 and a record number not seen since before the financial crisis. In the absence of definitive data for 2023, which the National Institute of Statistics publishes with a two-month delay, the year will end on a downward note. “The number of transactions will continue to decline in the coming months around 550,000 purchases and sales close the year“, points out Judit Montoriolchief economist at CaixaBank Research. The German Perez Barrio, president of the estimator UVE Valaciones, also believes that “the year will close slightly below 600,000 sales and purchases”. These figures, according to Paloma Arnaizsecretary general of the Spanish Association of Value (AEV), represent a “gradual return to the historical average of Spain, with volumes similar to those experienced in 2018 and 2019”.
Despite the decline in transactions and the market slowdown, the macroeconomic situation has not translated into house prices. 2023, like previous years, will be a year of increases. “Home prices increased by about 5%“, Explain Cristina Arias, director of the Tinsa studies service, who warns that this figure “represents a slowdown compared to the 7% increase recorded in 2022”. UVE Valuations points out that, according to data from the College of Chancellors, the revaluation will fluctuate between 0% and 2% in 2023. However, the three data sources (Ministry of Housing, Registrars and property portals) indicate that the increases prices are becoming increasingly lower. From Fotocasa, Maria Matosspokesperson of the portal, adds: “If we averaged all the interannual variations of 2023, excluding December, we would obtain an increase of 8.8%. For now, if we anticipate the November data, we detect an interannual growth in the price of houses second-hand by 6.2%”.
Will house prices increase in 2024?
María Matos makes her predictions for next year: “We estimate increase in the first quarter of the year and, from there, we are likely to see downward fluctuations in some communities with lower demand and lower tourist attraction, due to the interannual comparison of strong variations presented in 2023.” In practice, these drops will not be massive drops in prices. “After the anomalous increases – up to 10.8% in June 2023 -, the price will simply be to return to the starting point”, clarifies the Fotocasa spokesperson.
Along the same lines, CaixaBank Research highlights that little by little the impact of the increase in interest rates is being transferred to the real economy. “Rates are currently at their highest level in 15 years and their impact is transmitted with some delay to house prices,” says Montoriol. The house of economic analysis of the financial entity expects a deceleration of 1.4% in 2024in the estimated value of free housing monitored by the Ministry of Housing.
UVE Valuations contemplates the most negative forecasts, with drops up to 3%. “We expect moderate drops for all of Spain, but with a big difference depending on the area: in tourist areas prices could drop and the drop could be greater in large cities,” says Germán Pérez Barrio.
No expert consulted expects sharp price drops, at least in nominal terms. In real terms, including inflation, there are unknowns. “It will depend on the evolution of inflation, currently subject to uncertainty due to its dependence on the evolution of energy prices in an international context of war in Ukraine and Gaza,” explains the director of Tinsa’s research service. “The increase in nominal terms that we expect for 2024 is 1.4%, a figure lower than inflation, which will be above 3%, which implies a decline in house prices in real terms“adds Montoriol. Paloma Arnaiz believes that new building construction “could see a small growth in real terms”.
Will more or fewer homes be sold in 2024?
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He the number of sales will continue to decline, again in 2024, as a result of the cooling in demand caused by the rise in rates. Higher financing costs sharply limit households’ borrowing capacity. CaixaBank Research highlights that it will “approach pre-pandemic records,” with approx 510,000 operations. Fotocasa reduces this figure to 420,000 transactions, while leaving the door open to a hypothetical drop in rates, which would allow closing on higher figures; while the more positive estimates of UVE ratings for next year are 540,000 sales“numbers similar to those of 2019”.
Forget it Nor does he expect a big decline in operations. “This evolution is supported by the resilience of employment and the restoration of the purchasing power of families as inflation moderates in a context of high rates,” explains Cristina Arias.
X-ray from the experts
Maria Matos (Photohouse)
The real estate market is a resilient market, as revealed by the pandemic, and with a great capacity to adapt to the new macroeconomic situation. The price is currently showing a moderate trend after showing the highest inter-annual variation of all time and, although the most stressed communities continue with very significant increases, at a local level we could begin to see a moderation in demand.
Germán Perez Barrio (GRAPE classifications)
In general terms, we are returning to the annual data of pre-pandemic transactions, after the process of decreasing transactions due to the confinement and followed by the process of strong increase recorded subsequently to compensate for those not carried out due to the pandemic. However, there are notable differences between areas, because rising interest rates have more effect in areas with a higher share of financed purchases.
Judit Montoriol (CaixaBank Research)
The Spanish market is slowing down, but at a slower pace than expected, considering that the cycle of interest rate increases has been very rapid and pronounced. This is due to several factors, including a resilient labor market, significant migration flows, the mismatch between a low supply of new housing and high demand, and a favorable financial situation of households. The high percentage of fixed rate mortgages granted in recent years limits the impact that the rise in rates is having.
Cristina Arias (Tinsa)
We find ourselves in a scenario of solvent demand and mainly use, balanced debt/GDP ratios, default risk limited by the fixed mortgage rate, household deleveraging and the absence of exuberance in construction which could lead to significant corrections in prices residential.
Paloma Arnaiz (AEV)
Housing is a multi-speed market. On the one hand, some enclaves, where most of the demand and population accumulates, maintain an upward price dynamic, especially in the new construction and rental segments. On the other hand, a large part of Spain is occupied by municipalities with poor real estate dynamics, where prices remain stagnant. Overall, the national average has grown relatively gradually, compared to the sharp evolution in other countries.
2023-12-28 23:00:25
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