Forecasts for buying, selling, pricing and renting homes from Nomisma through 2026.
The growth prospects of Italy and the world can be cautious about the situation in the Italian real estate market. The slowdown in residential real estate transactions in 2023, mainly due to rising interest rates, risks continuing into next year. Particular attention is paid to rents, which, unlike residential real estate prices, are skyrocketing, especially in some Italian cities, with an emphasis on short-term rentals. This is a summary of Nomisma's third Real Estate Market Survey 2023 with price and transaction volume forecasts through 2026.
The economic situation in Italy and in the world
Analyzing the economic situation, Nomisma Chief Economist Lucio Poma is moderately optimistic about the ability of Italian companies to bet on the future, although the growth forecasts of our country by the International Monetary Fund have been reduced by a few tenths of a percent, while remaining positive, at 0.7% per year for 2023 (compared to the forecast for July 2023 + 1.1%).
The inflation situation, both globally and at the US and EU levels, shows that "core" inflation is not declining, although volatility, prioritized by energy commodities, is in deciduous decline. This is likely to lead not only to a slowdown but also, sooner or later, to lower interest rates, especially in the US, where the economy relies mainly on inflation-hit consumer demand.
In this environment, corporate and consumer confidence in Italy is declining. While industrial production is giving encouraging signals, there remains a gap between inflation and wages, which rose 5.5 percent versus 3.2 percent, indicating a larger gap than in previous months. This is the first time in history and could influence future economic decisions.
Italians' home buying intentions
The above plays a role in determining Italians' intentions to buy a home, which is reflected in a clear decline in 2023. Acquisition intentions are expected to increase in the fourth quarter, but only their rapid component, rising to 5.5 percent from 2 percent in the third quarter. However, the proportion of Italians who will actually buy a home will remain low, from 0.5 percent in the third quarter to 0.7 percent in the fourth quarter.
What concerns families who plan to take out a mortgage, only 43 percent of them will do so within 12 months, against 35 percent of the possible and 22 percent who will definitely not.
The year-on-year decline, however, indicates a decrease in the purchasing power of Italian families, which, combined with the difficulty of accessing credit, has led to weakened prospects in the real estate market. If the demand of potential buyers did not decrease during the year, remaining at a very high level in Italy, "The sudden shortage in the Italian real estate market is due to the lack of income indexation and increased difficulties in accessing credit due to the soaring cost of money," according to the Nomisma Report.
Real estate mortgages and forecasts to 2026
The more cautious lending policy, combined with the decline in demand, is reflected in the volume of mortgages granted, which fell by 29% this year, resulting in a 13% drop in transaction volume, in parallel with the rise in interest rates on mortgages, especially variable-rate mortgages.
In terms of residential real estate transactions, there was a slowdown in 2022 (+ 4.7% per year) and the half-year comparison (first half of 2023 compared to the first half of 2022) was -12.5% for a total of 50 thousand fewer transactions.
In particular, in the second half of 2023, the semi-annual price change ranged from a minimum value for properties in excellent condition in Cagliari (-1.3 percent) to a maximum value in Milan (+1.3 percent). On average, in the main Italian markets analyzed by Nomisma, there is a slight negative price change for properties in excellent condition (-0.1% on a semester basis) and a halt in the price increase for properties in good condition (+0.5%).
Nationally, the price forecasts are as follows: 1.5 percent growth in nominal terms (-4.3 percent in real terms, excluding inflation) in 2023; 0.6 percent growth in nominal terms (-1.5 percent in real terms) in 2024; 0.5 percent growth in nominal terms (-1.5 percent in real terms) in 2025; and finally 0.6 percent growth in nominal terms (-1.4 percent in real terms) in 2026.
The rental market in Italy
The difficulties faced by families in buying a home are increasing interest in the rental market. In the last year, 7.3% of demand has shifted from buying to renting, adding pressure to an already congested segment.
University, tourist and other types of demand are adding to residential demand, leading to a shortage of supply and feeding a spiral of rising rents.
Rents are up 3.8% a year and range from 8.9% in Bologna to 1.6% in Palermo. In the second half of the year, the partial transfer of interests to the rental market led to a sharp increase in rents (+2.1%). When analyzing individual cities, increases of between 3 and 4% can be noted in Milan, Florence and Turin, and up to 5% in Bologna.
"The lack of supply is not due to a physical lack of residential real estate," specifies Luca Dondi, CEO of Nomisma.
Factually, there are 3.5 million multi-family households in Italy, of which only 24% rent out a second home, while 51% lend it to family or friends, 11% leave it unused and 33% use it for vacations. In Milan, 700,586 apartments are occupied, representing 86.5% of the total, while 109,404 apartments are vacant, representing 13.5% of the total.
Short-term rentals and rent growth: the position of Nomisma.
"If homes are in short supply," Dondi continues, "it's because, in a situation where the risks of renting a home are high, owners are, legitimately, abandoning traditional forms of renting, focusing on other forms of rental, such as short-term rentals, or otherwise leaving the home vacant. Short-term rentals have advantages and are having an impact on the market, not so much quantitatively because the proportion of homes in short-term rentals is relatively small, but because the risk/return outlook is much more interesting." This refers to the difference in yield between the free market and short-term rentals, which in Milan ranges from 4.8% to 8.9%, in Venice from 4.4% to 14.2%, and in Rome from 5.7% to 11.7%. "I believe that discussions on the subject of short-term rentals cannot be effective unless they become focused on changing the purpose of residential buildings. Other challenges should be considered, including the fact that renting is now increasingly becoming a choice, but there is a lack of commitment on the part of specialized operators to address everything from investment to management. We need to discuss the availability of residential facilities in Italy and decide whether the free curriculum, in particular of Milan, should remain a showcase program or be concretely implemented in other cities as well," concludes Dondi.
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