The residential real estate market: trends and forecasts until 2025.

The first half of 2023 marked a slowdown for the residential real estate market, but recovery could be noticeable as early as the second half of 2024. This is according to data from the Gabetti Research Office. According to CEO Marco Speretta, the slowdown in inflation and a possible decrease in interest rates could herald a new upswing in the real estate market in Italy starting in 2024.

Real estate transactions in Italy

In the first half of 2023, as expected, taking into account the trend in mortgage rates, the residential real estate market showed a decline. In particular, there was a 12% decrease in transactions compared to the same period in 2022, totaling 350,855 transactions (data from the Revenue Agency), with 166,745 transactions in the first quarter and 184,110 transactions in the second quarter, respectively - down 8% and 16% compared to the corresponding periods in 2022.

“The trend in transactions confirms the expectations of operators and indicates a waiting moment for families looking to buy housing. However, the slowdown in inflation and the potential decrease in interest rates in the coming months suggest that the residential real estate market may show signs of recovery in the second half of 2024, provided that the energy modernization of buildings becomes a key factor in the near future,” said Marco Speretta, CEO of the Gabetti Group.

However, when comparing the first half of the year over the last 10 years, the picture changes significantly: compared to the average number of transactions, which was 277,550, the first half of 2023 saw a 26% increase and is the third best period after the record-breaking halves of 2021 and 2022, the effects of which are linked to the surge in the residential real estate market following the lockdown. This indicates that the rise in interest rates, the main reason for the slowdown in transactions, is being offset by demand for real estate, which remains high compared to the pre-pandemic period.

Real estate transactions in Italy by region

In the first half of 2023, all macroregions experienced negative changes: -13.1% in the northern region, -16.1% in the central region, and -8.2% in the southern region. Overall, capital cities show a decline of 14%, while independent cities have decreased by 11.7%.

If we look at the ten largest Italian cities by population, a total of 58,260 transactions were recorded in the first half of 2023, which is 15% less than in the first half of 2022. All cities reported negative trends: in particular, Bologna showed a decrease of 23.3% compared to the same period in 2022, followed by Bari (-22%), Milan (-20.0%), Padua (-18%), Rome (-16.5%), Florence (-12.7%), and Genoa (-10.4%). The decline was less significant in Turin (-9.1%), Naples (-6.1%), and Palermo (-4.6%).

Prices, sales timelines, and discounts on real estate in Italy

In terms of housing prices in Italy, the first half of 2023 showed an average change of about +0.3%, which is generally stable compared to the same period in 2022. When looking at the half-year change, all major cities showed stable values. Higher changes were noted in Bari and Palermo, both at +1%, andMilan at +0.9%.

The average selling times in large cities have slightly increased, averaging 4.3 months compared to 4.2 months in the second half of 2022.

In the first half of 2023, the average discounts between the asking price and the closing price for major cities slightly decreased from 11.2% to 10.5%. This is also an average figure; in reality, there is a noticeable difference between properties sold at a price that remains around 11% and those that are listed at outdated prices with subsequent reductions.

Property transactions from 2013 to 2025

Since mid-2022, inflation growth has changed the trajectory of the real estate market, marking the beginning of a new cycle.

This situation is reducing the activity of residential real estate sales compared to the outstanding years of 2021-2022, but it seems to be normalizing to the level of 2019 (pre-pandemic).

“The current macroeconomic upheavals,” Speretta clarifies, “seem to confirm the end of the pandemic mini-cycle in real estate from 2020 to 2022 and the beginning of a new normalized phase, which, at least until 2023 and the first half of 2024, will depend on the level of interest rates, no longer at historical lows as they were from 2017 to 2021, and the corresponding decrease in the volume of loans for home purchases, which already fell by 30% year-on-year in the first half of 2023.”

Expectations for the future remain optimistic (except for possible upheavals caused by a sudden escalation of tensions in the Middle East). Inflation in the first part of 2023 has been on a downward trend, and the national consumer goods index (NIC) decreased from 10% in January 2023 to 1.7% last October.

Forecasting a decrease in the volatile component (the consumer price index, which includes energy goods such as gas) is good news, as it heralds a change in the trend of the core component and, consequently, a slowdown in inflation, which is expected to average around 5.6% by December 2023. The harmonized forecast for the consumer price index in the Eurozone indicates a sharp decline in inflation in 2024 (3.2%) and 2025 (2.1%).

In light of the decreasing inflation, it can be assumed that the ECB's tightening policy regarding interest rates will ease, and by 2024, rates may return to more stable levels for businesses and households.

In addition to the reduction of inflation and interest rate dynamics, operators are also focused on the issue of energy and the new role of homes, which will shape the residential real estate market in the near future.

First of all, there is the issue of energy. The awareness that buildings consume a large amount of energy has significantly increased compared to a few years ago. It is estimated that there are between 1.8 to 2 million of the most energy-consuming buildings in Italy. Thanks to the 110% super bonus program, around 430,000 renovations have been carried out, which means there are still about 1.6 million residential buildings that need renovation. In addition to this environmental necessity, there is also a family need for energy efficiency and comfort.

Another trend that will define a new phase in the real estate market is the role of housing. The order of variables by which families choose their homes has changed. Requirements for spaces for socializing, home office rooms, gardens, gyms, laundry services, among others, are becoming increasingly sought after in the context of condominiums, alongside traditional features such as elevators, open spaces, or parking. New construction, which has been unable to meet potential demand in Italy for several years, must increasingly take these dynamics into account.