Nomisma real estate forecasts in Italy: the Italian market

The Italian real estate market is showing signs of weakening, but given the post-pandemic "boom", this indicates a stabilization of the market at values that do suggest it is in good health. But the real risk lies in the uncertainty surrounding the development of interest rates and the prolonged effects on the real economy and the purchasing power of families. In general terms, the Italian real estate watchdog Nomisma analyzes the state of the industry.

The economic situation in the real estate market in Italy.

"The macroeconomic context in which the Italian real estate market exists at the moment is characterized by the fact that Italian GDP exceeded German GDP for the third consecutive year," notes Lucho Poma, Nomisma's chief economist. "Forecasts for 2024 show Italian GDP at +0.7%, while German GDP is +0.5%, eurozone +0.9% and global GDP +3.1%. Global growth is again led by the United States, where growth of 2.1% is expected."

There is also an improvement in inflation in Italy, at 0.8%, compared to 2.5% in Germany. However, in general, the decline in inflation is due to "non-core" components: the decline in this macroeconomic indicator actually makes it more difficult to transmit it to the real economy, which affects the purchasing power of the consumer.

Added to this is the ongoing high interest rate environment which, rather than providing certainty to markets, does the opposite, implying that central banks have no idea how the future situation will unfold and accordingly remain in wait-and-see mode.

However, this effect affects consumers, who, suffering from high interest rates on loans and too high consumer prices, see their purchasing power fall and experience the double difficulty of getting a home loan: too high payments on the one hand and excessive selectivity on the part of banks on the other. It doesn't matter that employment is in good shape, with regions such as Lombardy and Venice actually experiencing full employment: wages are still rising much slower than inflation and are not helping to strengthen the financial situation of families. Therefore, the demand for credit is declining, as well as the demand to buyreal estate.

Demand and supply of real estate.

According to Luca Dondi, CEO of Nomisma, this is the main weakness of the Italian real estate market. The gap between inflation and wages is more than 7%, which leads to a more selective attitude of banks in granting credit. The number of home purchases using mortgages is decreasing due to self-selection of demand: families also refuse to apply for consideration if they see that their situation is unsupported. Consequently, the intention of families to purchase real estate and, in general, to transact is reduced. As a consequence of this dynamic, the number of residential transactions is reduced by about 10%, amounting to 710 thousand in 2023 and projected to be 695 thousand in 2024, 689 thousand in 2025 and 682 thousand in 2026.

"Uncertainty about the outlook is becoming a factor in the inevitable postponement of decisions, especially those involving significant capital investment such as buying a home. It should come as no surprise that buying demand has declined in the last year compared to 2022, when the enthusiastic mood was writing bullet points for prospective owners. What's missing is not so much potential interest, which remains structurally higher in our country, but the willingness of the banking sector to support the process of first-time borrowers," comments Luca Dondi. - "Not a few uncertainties that chart the path of the Italian real estate market in 2024, although the main one remains related to the orientation of financial institutions at all levels. A possible return to more favorable conditions, in terms of willingness to lend and the conditions for obtaining loans, would prevent the reflection of the downturn in demand and transactions on prices. If no change in the situation is expected in the first half of the year, a change in the trajectory can be expected from the second half, with effects that at least initially will be rather minor."

Real estate prices, forecasts through 2026.

Regarding real estate prices, while nominal growth for residential properties in 2023 is 1.5%, the inflation-adjusted change is -3.9%. For the following years, 2024, 2025 and 2026, Nomisma projects a linear nominal growth of 1.4% in each year; however, adjusted for inflation, these values should result in -0.5% in 2024, -0.8% in 2025 and -0.5% in 2026. Thus, it is not the price situation - which also varies from city to city - that is slowing down the market, but rather the credit environment. In light of this, according to Nomisma, a more lenient attitude from the ECB will not be enough to immediately boost transaction demand, but a normalization phase will be needed to help create a more favorable demand environment.

Fewer purchases using mortgages, more rentals.

According to Nomisma, the metronome for market recovery will be the credit component, whose importance is already clear, especially during periods of cyclical weakness.

The rental housing market in Italy.

The "flight" from purchasing with the use of mortgages is shifting the market towards rentals, which, along with the demand for rentals from groups such as students and tourists due to the phenomenon of short-term rentals, is putting pressure on supply and increasing rental prices due to the greater appeal of unusual rental incomes. The increase in rental payments in 13 major cities was 3.8%, with a maximum of 8.9% in Bologna and a minimum of 1.6% in Palermo.

The real estate market in medium-sized cities.

The analysis by the Nomisma Research Center on medium-sized cities showed a positive, albeit slight, change in housing prices (+1.2% for used properties and +1.7% for those in excellent condition) as a result of local dynamics that are far from uniform. For instance, while the markets in Messina and Ancona show a nominal decrease in prices (down 2.2% and 1% respectively), the markets in Trieste and Novara demonstrate a positive change that is twice the market average (up 3.2% and 3% respectively). The rental market is experiencing further growth in rental prices (+2.9% per year). The average value shows some variability across market monitoring: from a decline in Messina (-1.3%) to stability in Bergamo (+5.1%) and a peak in Perugia (+5.2%). When considering the average time to sell a property, there is a certain stabilization, with 5.2 months for properties in excellent condition and 5.6 months for those in good condition. In this case, there is also variability between markets, with selling times ranging from 3.5 months in Trieste to 6 months in Ancona. Finally, the Real Estate Research Center indicates that housing demand, both for purchase and rental, is increasingly focused on internal features such as a balcony or terrace, two bathrooms, room lighting, and the availability of parking or a garage, as well as access to network services. This is followed by the search for external conditions, such as the presence of green spaces and proximity to public services and transport, and finally, the type of building, which is assessed in terms of condition and energy efficiency. The shift in interest towards renting further highlights the saturation of a sector that is already suffering from a clear supply shortage. In the residential sector, the better performance of the rental segment compared to the purchase segment supports a growth—albeit small—in gross rental yield, which stands at 5.6% per year. "Real estate operators forecast a further decline in market turnover for 2024 (47.5% of responses) or, at best, no change compared to last year (44.3%). Only 8.2% of respondents predict a resumption of transactions, thanks to easier access to credit, the availability of new properties for sale, and an increasing tendency to buy, also driven by the high cost of rent," concludes Elena Molioni, head of the real estate department at Nomisma.

I have been a journalist since 2010, and since 2018 I have been working at Idealist. My specialization is in economics and real estate inMilan, but I also enjoy giving advice on how to take care of your home. I have been the mother of Francesco since 2015 and I am crazy about my cat Sonic since 2022. In my free time, I practice Krav Maga (be careful!), bake desserts, and whenever I can, I sing soprano in a choir.