Real estate market, Bank of Italy: Weak demand but less unfavorable dynamics in the first quarter of 2024.

The "Conjectural Survey on the Real Estate Market in Italy" for the 4th quarter of 2023 has been published. According to the Bank of Italy's quarterly survey of 1,501 real estate agents conducted between January 8 and February 5, 2024, the conjunctural dynamics of real estate prices have generally softened in the fourth quarter of last year; the assessment of stability remains predominant (more than two-thirds of operators). However, demand remains weak and the rental market remains tight. In terms of expectations, agents' pessimism regarding Q1 2024 has decreased, both in terms of their own market and the national market.

Prices

According to the Bank of Italy's conjuncture survey for the 4th quarter of 2023, assessments of stability prevail (65% of operators), while the percentage of operators reporting price increases continues to decline and stands at 9%, down 15 percentage points from the peak recorded in the first quarter of 2022. At the same time, 25% of operators report price decreases.

Discount

Overall, the average discount compared to initial seller requests is still small at 8.6%, 5 percentage points below the pre-pandemic average but still in line with recent quarters. However, about a third of operators indicate a higher discount, between 10 and 30%. The time between assignment and sale remains slightly above the minimum recorded since the survey began in the first quarter of 2023.

Demand

The survey also showed that demand remains weak. Specifically, despite the increase from the previous quarter, the percentage of agencies that sold at least one residential property remains lower than the same period last year for the fourth consecutive quarter, but still well above the pre-pandemic average (87% compared to 72% between 2012 and 2019 and 81% in the third quarter).

Sales

81% of sales were for existing properties. Approximately 40% of residential properties sold are small in size (less than 80 square meters). Properties with a lower energy class (F-G) account for almost 60% of the total number of transactions and less than two-thirds in urban areas. In non-urban areas, a higher proportion of sales (43%) are for properties with a higher energy class (A-E).

Assignments

Approximately 40% of operators are seeing a decrease in new sales orders and potential buyers.

Difficulties related to mortgages

The main reason for the cessation of sales orders for about a third of operators is the difficulty in obtaining a mortgage, which means that the percentage of purchases financed through mortgages is at historically low levels.

Expectations

The study showed that pessimism regarding agents' expectations for the first quarter of 2024 has decreased both for their own market and the national market. Approximately two-thirds of operators expect conditions in their market to stabilize in the first three months of 2024; the balance between forecasts for increases and decreases in new orders has become less negative (-10 percentage points compared to -14).

The price outlook for the current quarter continues to indicate a moderate decline; however, the negative balance has significantly decreased compared to the previous quarter (from -36 to -23 percentage points), reflecting a reduction in negative assessments combined with increased stability. The share of operators expecting worsening conditions in the national market has significantly decreased, although it is still nearly 30 percentage points higher than the share of those anticipating improvement. Two-year forecasts have improved significantly.

According to operators, there are signs that the real estate market will be less unfavorable in the first three months of 2024, both in their local market and nationally.

Rental

The rental market remains tense. Specifically, the increase in rental prices is supported by strong demand and a decrease in supply, partly due to property owners' preference for short-term rentals.

Specifically, operators have confirmed a trend of rising rental prices, following an almost continuous increase in the rental price index since the beginning of 2022. The balance between the increase and decrease in rental prices remains at its highest level since the start of the study (46.5 percentage points); growth is expected to continue in the current quarter for 38.6% of operators (while 4.3% anticipate a decrease), especially considering the slight discount (2.2%) compared to initial requests from property owners. The increase in demand for rentals amid a decrease in supply is the main reason for the rise in rental prices. The main constraint on supply is the preference for short-term rentals (reported by 44.2% of operators), which remains low in the fourth quarter; over 45% of operators reported a decrease in new rental orders compared to the previous period, while only 8% reported an increase.