Falling availability will reduce the price growth of Spanish homes.

Real estate sales have decreased by about 9% by 2023. The number of real estate transactions fell by 9% in the first 11 months of 2023. According to data published by the Spanish statistical agency last Friday, the number of real estate transactions in November dropped by 15% compared to the same month in 2022. The demand for mortgage loans experienced an even sharper decline, falling by 18% in the first 10 months of 2023 compared to the same period in 2022. This indicates that especially first-time buyers are struggling to purchase property amid rising interest rates. Investors, who less frequently use mortgages to buyreal estate, are less sensitive to interest rates than first-time buyers, which explains the difference. Moreover, demand from investors last year was supported by an increase in the number of foreigners buying property in Spain.

Spanish housing prices continue to show a steady increase. Despite a sharp rise in interest rates and an economic slowdown, Spanish housing prices keep rising. In late December, INE reported that Spanish housing prices increased by 4.5% in the third quarter of 2023 compared to the previous year, outpacing the eurozone average, which saw a decline of 2.2%. In Germany, prices fell by more than 10% compared to the previous year. Although data for the fourth quarter has not yet been released, TINSA data indicates that housing prices will continue their upward trend until the end of 2023, potentially leading to an average annual increase in housing prices of around 4.5%.

Prices for new buildings are significantly higher, but a stabilization is expected this year. The price of new buildings sharply increased last year: the price of a new building in the third quarter of 2023 rose by 11% compared to the previous year. In contrast, prices for ready-to-move-in housing grew more moderately by 3.2% during the same period. This year, strong price increases for new buildings are expected to level off. Last year, developers still had to compensate for many price hikes due to the sharp rise in construction material costs caused by supply chain issues following the COVID-19 pandemic. However, this effect is expected to weaken in 2024. The cost of construction has significantly decreased over the past year. According to data from the National Bank of Spain, the cost of construction was slightly (-0.6%) lower than a year ago in October, indicating that price pressures have significantly eased.

Availability has significantly worsened over the past two years due to a sharp rise in interest rates since the beginning of 2022, combined with a sustained increase in housing prices. Calculations from the Bank of Spain show that Spanish families now spend an average of 39% of their annual disposable income on mortgage payments in the first year after purchasing a home. This figure was 30% in 2021, highlighting the difficulties faced by first-time buyers when purchasing a home.