'What's happening in Spain: housing is getting cheaper in Berlin and London, but not in Madrid'

Real estate in Europe is experiencing an unusual moment. House prices in the UK have fallen at the fastest rate in 14 years, while in Germany house prices have also recorded their biggest annual fall since 2000. Overall, the second quarter of 2023 brought a 1.7% drop in house prices in Europe and a 1.1% drop in the European Union, according to Eurostat.

Yes, in many parts of the continent, house prices are already below last year's average. But not in Spain. Data. German house prices registered their biggest fall in the second quarter of this year since records began. Its government says high interest rates and rising material costs have taken their toll on the real estate market. The result was''a 9.9% annual decline in residential real estate prices, especially in Berlin, Hamburg and Munich.

The UK has seen a similar phenomenon. Prices are down 3.8% on an annualized basis, according to the National Building Society. They also say rising credit growth has slowed demand, causing prices to fall. Just nine EU countries recorded lower prices in the second quarter of 2023 compared to the previous year, but in the other 17 member states house prices continue to rise.

Unfortunately, this is the case in our country. Spain. House prices rose by more than 6% in the first half of the year, specifically by 6.7% on an annualized basis from January to March and by 6.4% from April to June, according to the consulting and valuation company Gesvalt. Thus,''our country has seen house prices rise by more than 3% for the second year in a row. This means that the cost of houses is 1568 euros per square meter.

The fact is that the real estate market in Spain is indeed slowing down, which can be seen in the number of sales transactions and mortgages, but very slightly. In fact, the fact that prices remain at the same level in the current economic situation surprises experts who are already calling it a real estate paradox: a decrease in transactions and mortgages and an increase in prices. Only a rise in interest rates could have led to a rapid decline in prices, but that hasn't happened.

Although the general consensus indicates that Europe is experiencing a''Moderation after the surge in 2022, caused by nervousness about the tightening of monetary policy by central banks (interest rate hikes), some experts do not believe that interest rate hikes have an impact on prices in Spain. The emphasis is on the lack of supply and the persistence of demand.

What are the experts saying?

Cristina Arias, research director at Tinsa, explains in an article for Spanish newspaper El Periódico that the main reason is that "some European cities have seen a steady increase in residential real estate prices since 2008, accelerated from 2019. The change in monetary policy has shown that there are bubble dynamics and prices are adjusting in these markets." According to her,''There is no bubble here, on the contrary: "In Madrid and Barcelona, the upward trend in prices started later, and the rate of increase has not been so aggressive for such a long time. In addition, mortgage finance has remained at equilibrium levels and there has been no excess demand for credit. "

This is also confirmed by José María Basañez, president of the valuation company Tecnitasa, who says in the same article that "house prices in several European countries are falling, especially in those countries where they have grown more strongly in recent years, and much more strongly than in Spain." In other words, in other European capitals, house prices have risen strongly since the major financial crisis, and now there is a correction underway. There is no bubble, no supply.

In contrast to what happened in'The first decade of the twenty-first century, there was no oversupply, quite the opposite. While demand has increased significantly since the start of the pandemic, the market has been able to respond with the same speed in terms of supply. Due to the small number of developers and strong barriers to entry, it has been very difficult to see an increase in new housing inventory. Rising interest rates, which have made it difficult for developers to access credit, play an important role here. And demand is still strong.

Added to this is the fact that, as mentioned earlier, despite the rise in interest rates and the tightening of mortgage conditions by banks, demand for housing in Spain remains resilient. Some experts point to factors such as the high percentage of foreign''buyers and the fact that almost half of home sales and purchases in Spain are made in cash, that is, without mortgage financing.

Image: Unsplash in Xataka | In Madrid, apartments are selling for 50,000 euros. There's just one problem: they're already inhabited inside.