According to estimates published in S&P Global Ratings, residential property prices in Spain should rise by 4.6% in 2022 and, after reaching their peak, begin to decline during the next 3 years. Already in 2023, the extremely active growth of previous years will slow down to 4%. Up to 3.5% slowdown should occur in 2024 and up to 3.2% in 2025.
In this respect, the performance of the Spanish real estate market is in line with that of other European countries according to the S&P Global Ratings analysis. EU averages show that real estate price growth will decline from 10% recorded in 2021 to 5% in 2022 and 3% in 2023.
The predicted cooling of the market is largely due to a decrease in the housing affordability, that is, an extremely high imbalance of supply and demand, an increase in interest rates on loans and a drop in household incomes. The situation is a pendulum. High demand is pushing prices into an unprecedented rise in which most consumers can no longer afford to enter the market, which sharply reduces demand and forces sellers to cut prices to win buyers back.
A group of European economy experts at S&P Global Ratings expects the market to move to a "smooth" development supported by households that remain resilient in the wake of the pandemic.
Returning to Spain, S&P Global Ratings notes that local housing prices began to skyrocket in the second half of 2021. This was especially noticeable in the coastal regions of the country and in the suburbs of large settlements, provincial capitals. Particular attention was paid to large spacious properties.
This year, the real estate market will be affected by rising construction costs associated with rising building materials prices in global markets. Growth will be 4 points higher than inflation. The “hunger” for real estate among foreign buyers, who could not satisfy it during the pandemic and related restrictions, also has an impact. Today they are actively returning to Spain and purchasing everything they can.
The situation is influenced by another factor, a factor of geopolitical nature. We are talking about millions of citizens of Ukraine who are fleeing hostilities to Europe, fleeing as far as possible, including to Spain. S&P Global cites data from the Office of the United Nations High Commissioner for Refugees (UNHCR), which show that as of June 2022, approximately 5,500,000 Ukrainians have left their country. Most of them fled to Europe.
About 860,000 Ukrainians arrived in Germany, 140,000 in Italy and about 120,000 in Spain. S&P notes that the longer the conflict continues, the more refugees will arrive in Europe, increasing the demand for housing.