Both 2022 and 2023 marked the largest change in the monetary policy of the European Central Bank (ECB) over the past 5 years. This, as you might guess, is due to an increase in interest rates. The last increase put 50 basis points. This is less than the initial 75 points and forced many to start building hopes for an end to the rate hike, but the ECB representatives firmly stated that they would continue to increase the key indicator in 2023. Perhaps some increases will drop to 25 points, but the process will not stop.
However, do not forget that 2022 has become a «golden period» for the Spanish market, having been marked by the best indicators, in several areas of the market at once, since 2007. More than 600,000 housing units sold at the end of the year, record rates of price growth, the cost of each individual transaction, popularity with a foreign audience. The latter has chosen Spain not only for the economic stability of the local real estate market, but also for the comfort of the housing itself. But it is precisely this growth that can play a cruel joke with the Spanish markets, because the higher you climb, the longer and more painful it is to fall.
From 2023, sales are expected to decrease by 12% at once. The process of decline will not be abrupt and catastrophic, it will be smooth, but confident. Inflation persists, household incomes are falling, businesses are cutting their expenses, lending rates, including mortgage, are rising, a global crisis of food, energy, labor, and building materials is forming. So far, the local market is resisting the blows of the global recession due to the abundant demand from wealthy foreign buyers, tourists and businesses, but this resource is not unlimited.
There is a cycle change in the market and we can observe changes in all aspects of the market, including mortgage. About 75% of mortgage transactions were concluded on a fixed rate basis. This is an extremely noticeable change over the past decade. So, in 2012, loans with fixed rates accounted for only 6% of the total number of open mortgage loans. Of course, the trend change did not happen in a year, but it was 2021-22 that became a turning point, given the highest growth in mortgage rates since 2000 and the fastest growth of the Euribor index over the past 6 years. It is worth recalling that until the beginning of last year, the index was in the negative zone, at historical lows.
In general, it is necessary to expect a noticeable reduction in consumer demand in 2023. And in view of this, it is worth considering the situation with prices. Contrary to ECB forecasts, experts of the Fotocasa portal believe that such a large drop in prices should not be expected. The market will still have to be supported by both latent demand and foreign buyers. Fluctuations in prices will be observed, but to a small extent and the process will be highly dependent on the specific regional characteristics of the Spanish housing markets. The main price adjustment, according to Fotocasa, will be in the second half of this year.
It is safe to say that the market of new buildings will maintain the trend of price growth in 2023. The boom in this segment, which began after the end of the acute phase of the pandemic, shows no noticeable signs of slowing down. Demand, especially international, for new housing in Spain is steadily growing. However, this may prove to be a problem in the medium term, which will be associated with an unacceptably high price increase for such an offer. To all the economic reasons mentioned earlier that will affect the primary housing market, it is necessary to add a fairly low pace of construction of new facilities. The deficit in this market will not disappear in the coming years, but may only worsen. In this shortage, the small availability of land for development plays an important role, which is already connected with the policy of the Spanish authorities.