Could the real estate market collapse? What does the data say?

The ECB's crackdown on inflation and subsequent decision to raise rates is beginning to have an impact on the Italian real estate market.

In the first six months of this year, according to data provided by the National Notary Council based on notarial statistics, the number of transactions decreased by 8.7% compared to the same period in 2022, amounting to 277,052 transactions compared to 303,375 transactions.

The situation in the secondary housing market is different, showing relative stability, a decrease of 1.9%. However, the sector that has been hardest hit is direct purchases by construction companies, whose numbers fell by 11.5%.

The reasons for the slowdown. This situation in Italy reflects, to some extent, what is happening in the United States, where mortgage rates have reached their highest levels in 23 years, pushing home sales to their lowest level since the sub-prime crisis.

Chen Zhao, head of economic research at Redfin Real Estate Agencies, predicts that the total number of existing home sales will be about 4.1 million in 2023, the lowest since 2008, when Lehman Brothers collapsed, triggering the global financial crisis.

The slowdown in the real estate market this year is a significant difference from past years, especially in the context of the real estate bubble economy of the early 2000s.

The decline in purchases in Italy.The National Notary Council recently conducted a real estate market analysis for the first half of 2023, focusing on nine important cities: Rome, Milan, Naples, Bari, Bologna, Turin, Palermo, Verona and Florence.

The study looked at a variety of transactions including mortgages, refinancings and residential purchases. According to forecasts by the National Notary Council, the real estate market is expected to contract by 10.5% by the end of 2023. At the same time, mortgage lending is expected to decline significantly by 23.8%.

These data underscore the significant decline in loan originations (-23.8%) compared to the decline in the real estate market (-10.5%). At the local level, the real estate market in the nine surveyed cities shows a downward trend. The largest decrease occurred in the cities of Bari (-12.4%), Florence (-10.3%), Rome (-9.6%), Milan (-8.4%), Naples (-7.3%), Bologna (-4.6%), Verona (-3.7%), Turin (-3.4%), Palermo (-0.3%).

Decrease in mortgage lending.The significant decrease in mortgage lending is mainly due to the increase in interest rates compared to last year.

When analyzing obtaining financing by age groups, it can be noted that the decrease to one number is only among young people, up to the age of 36, a decrease of 9.1% in the 0-17 age group and a decrease of 9.6% in the 18-35 age group. For the other age groups, the decline is much more significant, about 28%. The most significant drop in the number of mortgages is in the 66 to 75 age group with a 51.9% decrease.

The refinance market is expected to decline by 38.2% from 2022, which is also due to higher interest rates in the first 6 months of 2023. By the end of the year, a further 38.2% decline is expected in re-lending.

Locally, the mortgage lending market is also showing a significant decline. The most affected cities include Palermo (-33.6%), Florence (-32.6%) and Turin (-31.5%). Although values are relatively lower, there are significant decreases in Verona (-25.6%), Milan (-26.4%) and Bari (-28%).