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

The European Central Bank's decision to fight inflation and the subsequent rise in interest rates is starting to have an impact on real estate in Italy. In the first six months of this year, transactions fell by 8.7% compared to the same period in 2022, according to data from the National Council of Notaries based on notarial statistics, from 303,375 to 277,052 transactions.

The situation regarding the real estate market related to secondary housing is relatively stable, with a decline of 1.9%. However, the biggest hit came from direct purchases by construction companies, which fell by 11.5%.

The relationship between the situation in Italy and the U.S.

The situation in Italy in a sense reflects that''s happening in the United States, where mortgage rates are at their highest level in 23 years, driving home sales down to lows seen during the sub-prime mortgage crisis. Chen Zhao, head of economic research at real estateagency Redfin, estimated that total existing home sales will reach about 4.1 million in 2023, the lowest since 2008, when Lehman Brothers fell, triggering the global financial crisis. The contraction of the real estate market this year is markedly different from the previous situation, especially when compared to the housing bubble of the early 2000s.

Decrease in transaction volume in Italy

Italy is also experiencing a decline in transaction volume. National Council''notariata recently conducted an analysis of the real estate market in the first half of 2023, focusing on nine important cities: Rome, Milan, Naples, Bari, Bologna, Turin, Palermo, Verona and Florence. The study included a range of transactions including mortgages, re-loans and residential purchases. According to forecasts by the National Council of Notaries, the real estate market is expected to contract by 10.5% by the end of 2023. At the same time, mortgage data shows a significant 23.8% decline in financing is expected. This data indicates a significant reduction in the provision of financing (-23.8%), compared to the level of the real estate market (-10.5%).

Reduction in mortgages and re-lending

The decline in mortgages is mainly due to higher interest rates compared to the previous year. Homebuyers prefer to use personal resources rather than seek financing due to the higher costs associated with mortgages. Analyzing the receipt of financing by age group, it can be seen that the decrease to single digits is only for young people, those under 36 years of age, with a decrease of 9.1% for the 0 to 17 age group and 9.6% for the 18 to 35 age group. For other age'The decline in the 'groups is much more pronounced, with a drop of about 28%. The strongest decline is seen in the 66 to 75 age group, with a 51.9% drop. In the re-lending market, a decline of 38.2% is expected compared to 2022, also due to rising interest rates in the first 6 months of 2023. By the end of the year, re-lending is expected to decline further by 38.2%. At the local level, the mortgage market is also experiencing significant declines. Cities most affected include Palermo (-33.6%), Florence (-32.6%) and Turin (-31.5%). Despite relatively lower values, there are also significant declines in Verona (-25.6%), Milan (-26.4%) and Bari (-28%).