Housing in2024: more expensive to buy and rent, but mortgage will be more accessible.

The housing problem continues to worsen in Spain: even in2024, those trying to buy or rent a home will not catch a break. Housing prices have been steadily rising since the second quarter of2014, and all indications are that housing will soon be in a permanent growth mode for the tenth year in a row. According to most experts,2024 will be very similar to2023: stable operations and price hikes. Perhaps only secondary housing will be able to slightly decrease in price, especially in less active areas. The good news will be the reduction of mortgage rates, if the Euribor continues to decrease, as it already did in December..

** In the rental sector, the trend of complexities that have accompanied recent years will persist: a scarcity of apartment offerings and rent squeezing the maximum out of tenants' incomes. Housing affordability is a problem faced by most Western economies, and in Spain, it has become one of the primary concerns of citizens who are suffocated by prices that far exceed earning capacities. No measure, whether public or from developers, has managed to balance the market.

Year2023 turned out to be incredible for the housing market: real estate transactions and mortgage agreements significantly decreased, but prices remained unchanged. This was predictable, considering the increase in interest rates by the European Central Bank (ECB) since July2022 to combat inflation, which directly affected families' financial capabilities. Of course, this year is being compared to2022, which was the best year for the real estate market since2007. Despite a noticeable double-digit decrease in transactions, by the end of2023, more than550,000 home sales transactions are expected, according to Fotocasa's forecasts, making it the second-best year in the last15 years.

In2024, the question arises whether the market has already reached the bottom. That is, to what extent will the demand for housing decrease. And opinions are divided on this point. Eduard Mendilus, executive director of Aliseda Inmobiliaria, believes that "the housing market segment will continue to suffer from the imbalance between existing supply and demand, which will lead to the maintenance of the volume of real estate transactions at the level of2023." Antonio de la Fuente, director of corporate finance at Colliers, says almost the same thing about the number of transactions in the housing market: "the number of operations in the residential real estate market will be at the level of2023." And Javier Kindelan, head of Living (residential direction) at CBRE Spain, shares the reasons why many people will continue to try to buy a house in Spain: "The economy will continue to grow in2024 and will consume young professionals, so we do not think that the demand will weaken significantly. Perhaps only slightly due to high financial costs," he says. "Everything that is currently being produced is selling," he adds, although "sales have not been as fast in recent months."

"With a more cautious look, Ernesto Ferrer-Bonsoms, real estate director at Solvia, expects a 'reduction in the number of transactions by5-8%, but the maintenance of a significant volume of property buying and selling deals, despite inflation and high interest rates.' Nevertheless, many economists are already predicting a decline in interest rates in the second half of2024. If this happens, 'we can expect that part of the demand for purchases, withdrawn in2023 due to the increase in loan costs, will resume,' says Jose Maria Basanes, President of the Tecnitasa Group."

In any case, the average housing cost will continue to rise, although the pace is slowing down. Ferrer-Bonsoms from Solvia talks about "an increase of1.5% to2.5%". Basanés from Tecnitasa points out a possible growth of up to4% if interest rates stabilize.

The construction of new housing will push prices up. The industrial association of developers and builders in Spain expects that the new year will also reflect2023. "Supply will remain limited due to problems in obtaining the final piece of land," notes Juan Antonio Gómez-Pintado, President of APCEspaña. He believes that "prices are still rising slightly" due to a lack of supply.

The only place to find discounts on prices for next year is the secondary housing market. After the real estate bubble burst, which led to the construction of over half a million homes in Spain for several consecutive years, housing construction was devastated. The recovery has been insufficient, resulting in four out of five homes sold being secondary. This asymmetry in the supply of the two types of housing leads to price differences, especially at times when the market begins to recover.

This is why real estate agencies believe that in 2024 we will see a slight decrease in prices for secondary housing, although it will be minimal. "Demand will exceed supply in major cities, so we do not expect a significant drop in average prices of more than 5%, and even premium areas will continue to grow," says José María Alfaro, president of the National Real Estate Federation (FAI). However, selling property will take more time.

This point of view is also shared by Susana Rodriguez, Executive Director of Living at Savills: "In the secondary housing market, prices will remain stable or decrease slightly by 3-7% in areas where there is more affordable housing for the population that has less access to the mortgage market." Juan Manuel Pardo, Director of Living at JLL Spain, also believes: "Secondary housing will decrease slightly." However, he adds that "prices will continue to rise, especially in the most active markets," among which he mentions Madrid, Barcelona, Valencia, and Malaga.

High rental prices

Renting causes a lot of problems.

In 2023, rent reached a historic high nationwide at €11.69 per square meter, surpassing even the levels recorded during the real estate boom of 2007, according to Fotocasa. Idealista reported last week that rental prices in Spain increased by 10.1% in 2023, with prices rising in 50 provincial capitals. The new year seems unlikely to change this situation. "Rental prices will continue to rise, outpacing average sales prices," says the president of Tecnitasa. Colliers consultants also see "rent above inflation." Susana Rodriguez, her colleague from Savills, agrees: "Demand will grow even faster than in 2023, and we expect rental prices to increase by 5-10%."

Real estate internet portals, such as Idealista, believe that excessive regulation, especially after the housing law was passed, has reduced the rental market to levels not seen in the last decade. "The constant supply of rental apartments has decreased by 12% and continues to fall most sharply in major markets, with a decline of 26% in Madrid and 23% in Malaga," they say. At Fotocasa, where they predict a 5% increase in rent in 2024, they talk about a "housing drama." "It doesn't seem that price pressure will ease in 2024 due to the obvious lack of supply," says Professor José García Montalvo from Pompeu Fabra University. The economist suggests that rent may grow less this year due to "economic slowdown and likely employment issues," but he considers a decrease in rental prices unlikely.

However, there are those who express much greater optimism. "The market will grow from the current 27% to 30% of residential properties intended for rental in Spain in 2024," reports Alquiler Seguro. Their president, Antonio Carroza, explains this by the explosion of construction of rental housing (the so-called build-to-rent) and the shift in supply from tourist and temporary rentals to residential. Additionally, they take into account the increase in ECB interest rates. However, after the government's announcement to extend measures limiting the eviction of vulnerable families throughout 2024, the company believes that more affordable offerings may disappear, as property owners tend to avoid risk and focus on the most profitable demand.

The best news for the upcoming year will likely be in the mortgage sector. Euribor has already dropped significantly in December, which indicates that sooner or later, those with variable-rate loans will see some relief in their payments. However, analysts warn that this does not mean a return to the days of very low rates, and that mortgages will remain more expensive than they were before the pandemic.

“If we look at the forecasts that the European Central Bank presented regarding inflation for 2024, it has been gradually lowering them,” summarizes researcher Hugo Rodriguez from the CSIC Economic Analysis Institute. He adds that this “gives the ECB the opportunity to consider lowering official interest rates without rushing.” “The six-month rate is practically the same as the one-day rate, which means that the market does not expect the ECB to start taking action until spring or summer.”

But these expectations are already reflected in the Euribor. Judith Montoriol, the chief economist at CaixaBank Research, believes that "the developments in recent weeks, with more favorable inflation indicators, have prompted the markets to move." "It is clear that they are factoring in more than two cuts" to official interest rates, the analyst adds, "reaching six cuts, although we believe that the last one is excessive." Whatever happens, "the impact [of interest rate cuts] on the economy and the real estate market will be restrained," she warns, although she believes that the reduction in borrowing costs "will stimulate consumption among people with mortgages."

Rafael Alonso, an analyst from the analysis and market team at Bankinter, emphasizes the idea that "concerns about how high mortgage rates will rise are being addressed," and therefore predicts "the activation of new operations in 2024." This means there will be a greater number of mortgage signings. The bank's forecasts suggest that the ECB will implement two rate cuts of half a percent, resulting in Euribor finishing next year around 3.25% (compared to the current 3.7%).

This seems to be a fairly realistic scenario among analysts. At least, that's what Sergio Carbajal, who is responsible for mortgages at the comparison portal Rastreator, suggests. "It seems that interest rates have peaked, and in December the average Euribor is already changing," he says. "In the first half of 2024, it will stabilize in the range of 3.2% to 3.4%, and this is good news for the entire mortgage industry." Based on conversations with various organizations, Carbajal claims that banks "expect a slight growth in the mortgage market in 2024."

“We are predicting a rather dull 2024 regarding Euribor,” says Cesar Betanco from the Hipoo portal, who believes that the average rate, which is linked to most variable mortgages in Spain, will hover around 3.5% next year, and he even does not rule out a temporary drop to 3%. “Fixed rates usually do not exceed this value, so mortgage offers will range from 3.2% to 3.5%,” he points out.

Betanko believes that mixed mortgages (where the interest rate is fixed for a few years and then becomes variable) "became the star of the last part of 2023, and this will continue into 2024." As all mortgage experts assert, in the medium term, we will not return to the pre-pandemic situation with rates at 0% or even negative. This means that, most likely, owners of variable-rate mortgages will feel some relief in 2024, but it will be much less than the shock they experienced in recent years.