A correction in the Spanish housing market: is it coming?

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Real estate prices in Spain

In the second quarter of 2022, property prices in Spain rose again by 8.0% year-on-year. However, price growth will slow due to higher mortgage rates and a weakening economic outlook. Price growth is expected to fall from 7% this year to 1% in 2023. Although price growth continues, it is no longer as high as it was at the peak.

Dynamics of housing price growth

House prices in Spain rose by 8.0% year-on-year in the second quarter. Growth slowed compared to the first quarter of 2022, but still remains above the historical average. New and existing home prices showed similar dynamics, but the former grew slightly stronger (+8.8% y/y) compared to the latter (+7.9% y/y). Tinsa data, which correlates with the quarterly INE index, shows a tendency for price growth to slow down in the summer. Spanish house prices were still rising at a 3% monthly rate in July, but then slowed to 0.5% monthly growth in September.

Rising prices during a pandemic

The onset of the COVID-19 pandemic has accelerated the rise in real estate prices in many countries.

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Since the beginning of 2020, existing house prices in Spain have risen by 11.5%. This is slightly less than in Portugal (+26.2%) and France (+15.5%), but more than in Italy, where prices have risen by 7.2% since the start of the pandemic. This strong price growth dynamic during the pandemic has led to a deterioration in housing affordability. Combined with rising mortgage rates, a deteriorating economic outlook, and high inflation eating away at people's purchasing power, the real estate market will continue to cool. We expect price growth to reach 7% in 2022, but slow to 1% next year. This means that nominal price growth will not be able to keep pace with inflation. With an expected inflation rate of 8.7% this year, real price growth will turn negative at -1.7%. With an expected inflation rate of 4.4%, real price growth in 2023 will also become negative and will be -3.4%.