The real estate market collapsed in 2023: -10% of transactions in Italy due to interest rates.

The Italian real estate market shrank significantly last year, with mortgage demand falling below 2021 levels. This is evidenced by a report from the Real Estate Market Observatory of the Revenue Agency, which recorded nearly 710,000 sales transactions in 2023, a decrease of 10 percent compared to 2022.

Real estate market crash

In the study, experts noted that the Italian real estate market showed negative trends in all quarters of 2023, although in the fourth quarter, the decline slowed to 3.3 percent, with just over 200,000 residential properties sold, easing the 10 percent drop recorded in the third quarter.

As stated in the document from the Observatory of the Revenue Agency regarding real estate, from October to December, "the share of residential properties purchased by individuals with mortgages sharply decreased, falling below 40% for the first time since 2021." Among the factors that caused the decline in sales transactions, the high level of interest rates had a particularly significant impact, sharply reducing the number of mortgage applications, which fell to below 40 percent, specifically to 37 percent for the first time since 2021. "The average interest rate on mortgage agreements," the report notes, "is 4.51 percent, rising again after a slight decrease in the previous quarter. The debt capital associated with residential transactions by individuals amounts to approximately 9.3 billion euros, which is 2.3 billion euros less than in the same quarter of 2022."

On this topic, ECB President Christine Lagarde spoke out, and her words seem hopeless for homeowners taking out mortgages. "Although most inflation indicators have slowed down, there are internal inflationary pressures, especially rising wages," said the head of the Frankfurt central bank at a press conference following the ECB's board meeting, where interest rates were confirmed to remain unchanged at 4.5 percent in March.

Report of the Real Estate Observatory of the Revenue Agency

Despite the decrease in transactions, the report from the Real Estate Market Observatory of the Revenue Agency revealed that the share of newly purchased properties increased in the fourth quarter of 2023, accounting for just over 9% of the total volume. Overall, the decline in trend rates, although negative, was noticeably less pronounced in major cities, with the most significant decreases observed inRome and Florence, at 11% and 8% respectively. The report also indicates that, according to rental data, the number of houses available for rent continued to decline in the fourth quarter of 2023, with approximately 240,000 houses rented out, and a total of 890,000 residential units rented in 2023: this rental figure continues to decrease compared to the same period in 2022 (-4.6%). The decline affected all market segments, with standard long-term rentals experiencing the most significant drop, with an annual change rate decrease of 7.6% (we have already reported on the real estate market trends in the IV quarter of 2023, according to data from the Bank of Italy).