Buying, selling and house prices: Nomisma's forecasts to 2025

While the world economy is facing a difficult situation caused by an invisible recession, problems with inflation and wage stagnation, uncertainty in geopolitics and not always effective monetary policy, the Italian real estate market has not experienced for a long time the drop in sales and prices that should have occurred back in the pandemic period. However, according to experts at Nomisma, the downturn is just around the corner: the home buying situation is becoming increasingly unfavorable and the high dependence on mortgages makes the possibility of buying a home more remote compared to a few years ago. In its review of the Italian real estate market, Nomisma analyzes the situation in the main Italian cities and makes predictions for the period up to 2025''years.

Predictions for home buying in 2023

The post-pandemic period witnessed an expansion of the real estate market beyond expectations, but it was actually facilitated by the desire to improve housing conditions, the availability of more savings in Italian families and the very low cost of credit, which contributed to the growth of the mortgage market. However, this situation has changed and, according to Luca Dondi, Nomisma's chief executive, the future picture will be disappointing.

The research center predicts that while there were 784,000 sales transactions in 2022, this figure will drop to 670,000 in 2023 (down 14.6 percent), 643,000 in 2024 and 669,000 in 2025. Decrease in the volume of transactions''volatile component. This situation is not compensated for by rising wages and the corresponding support for purchasing power.

Housing prices: trends and forecasts

With regard to real estate prices, according to Nomisma, values are still on the positive side, but tend towards stability. If, in nominal terms, home prices increase by 1 percent in 2023 (compared to an increase of 3.1 percent in 2022), this would actually translate into a decrease of 4.8 percent when adjusted for inflation. Similarly, nominal prices will increase by 0.2 and 0.5 percent in 2024 and 2025, respectively, and after accounting for inflation are expected to decline by 2.5 and 1.4 percent.

Besides inflation, an important factor for price dynamics is''shortage of new housing as material prices in the real estate market are rising. This means that the dynamics of real estate prices will not fully reflect the inflation rate.

The rental housing market: forecasts for 2023-2025

With the slowdown in sales transactions, Nomisma forecasts growth in the rental housing market, driven by the recovery of student rentals and the tourism industry following the pandemic. Continued demand includes the temporary lack of opportunity to become a landlord. As a result, "there is pressure on rent growth that exceeds price dynamics.

In 2022, there was a 3.6 percent increase in rents (nominal increase of 2 percent), the non-residential housing sector remained at average levels.''Yields remain stable and average 5.5% for residential properties. The time to find a home averages 1.5 months and the net rental yield is around 5.5%.

The gap between wages and mortgages in 2023

The gap between wages and inflation was calculated by Nomisma to be -9.6 percent by the end of 2022 and will not narrow in 2023. This is causing additional difficulties for Italian families to pay their mortgages, worsening the environment of confidence and purchase intentions.

Italian families are still heavily reliant on mortgages to buy a home, with only 17 percent of families not considering buying using a mortgage. However, demand for mortgages has decreased as families consider themselves more financially''vulnerable and less likely to apply to banks, knowing that they are likely to be rejected.

This situation is reflected in the tightening of credit conditions on the part of banks. Despite the reduction in bad loans, especially heavy loans, banks feel the need to be cautious because of monetary policy and the subsequent rise in interest rates, which on a long-term basis could lead to increased insolvency.

After relative stability in 2022, characterized by a slight increase in loan originations (+1%) and a sharp decline in surrogate and replacement deals (-70%), Nomisma predicts declines in double-digit percentages for both new mortgages (-18% y/y) and surrogate and replacement''transactions (-47%).

The mood of real estate agents for 2023

The Nomisma report analyzes the sentiment of real estate agents by market for 2023 in the main Italian cities on various aspects.

The imbalance between supply and demand for renting and buying

The overall imbalance between the supply and demand of housing becomes more significant for rental housing. While for buying the difference is an increase in demand of about 20 percent and a decrease in supply of 30 percent, for rentals we are talking about rental demand increasing by 80 percent with a decrease in supply of 60 percent.

Dynamics of supply and demand

In the midst of supply and demand dynamics in the housing market, agents''denote a portion of demand exiting the market (69 percent), shrinking housing budgets (87 percent) and a shift to renting (60 percent). On the supply side, 72 percent of agents note a decline in home prices.

Tenant identification

According to agents, renters tend to be young people (workers on the move, young couples, single parents, students, singles), while families moving in from out of town are declining. Preference is given to new or renovated housing close to public transportation and services such as schools, medical, etc.

Reasons for buying a home

The demand for home buying, according to agents, is primarily related to investment (14 percent), home replacement (29 percent), and primarily''s turn to purchase a first home (45 percent). The purchase of resort homes declined 28 percent, and the purchase of homes for relatives declined 6 percent.

The origin of demand for home purchases

Agents said those buying homes are mostly coming from metropolitan cities and looking for homes in other areas of the same city (25 percent), or residents of suburban cities want to live in the capital (23 percent). Out-migration from capital cities to the province is slowing, with a 1 percent decline in this type of housing demand.