From September to October 2022, Idealista and the portal «Pisos.com» we have recorded a noticeable decline in secondary market housing prices in two key cities of Spain — Madrid and Barcelona. This may be like a slight slowdown in the market within the framework of alternating fluctuations, but perhaps the first signs of big changes.
Information from Idealista indicates that prices on the secondary markets fell by 0.7% in the city of Barcelona and by 0.5% in Madrid over the month. Thus, the price per square meter of housing in Barcelona by the end of October cost 4,093 euros, and in Madrid — 3,974 euros. In the last 12 months, secondary market housing prices in Madrid have been growing continuously, month by month. In Barcelona, this has been happening since October 2021, albeit with minor fluctuations.
At the same time, the Pisos portal reports a 0.3% drop in prices in Barcelona, where it amounted to 4,434 euros per square meter at the end of October, and by 0.63% in Madrid, where it amounted to 4,330 euros per square meter for the same period.
Obvious decline
Although the Spanish real estate sector with unexpected tenacity resisted the economic instability formed due to COVID-19, all forecasts indicate that the coming wave of the global economic crisis will take its toll and lead to a market correction. The fall in prices will happen in the coming months and, of course, we are talking about a fall.
Quarterly statistics of the real estate valuation company Tinsa for the second quarter of 2022 indicated a decrease in housing prices by 0.8% compared to the first quarter of the year. This decline was observed both in the primary market and in the secondary market. Estimates of the upcoming correction vary.
Atlas consulting company expects a 15% drop in the coming year, while the European Central Bank (ECB) expects a 9% decline in the next 2 years, primarily due to rising interest rates on mortgage lending. One of the mildest scenarios is offered by analysts from the Spanish commercial bank Bankinter, who expect a 3% drop in 2023 and a 2% drop in 2024.
Like the ECB, Bankinter points to rising interest rates as one of the key factors in the correction. The Bankinter research department also recalls that the 12-month Euribor indicator increased from December 2021 to the beginning of December 2022 from -0.5% to 2.63%. Market forecasts point to growth above 3.4% in the next 12 months.
The bank also warns that European households have a high level of income and savings due to high inflation for basic consumer goods, including energy and food. Their acquisition opportunities will be difficult, which will reduce the available funds for buying or renting real estate. And with high mortgage rates, there simply won't be any options left for a huge number of households. At least until this compression of demand begins to move prices down.
At the same time, the financial institution points out that a sharp increase in interest rates on Spanish 10-year bonds makes investments in rental housing less attractive. Gross profitability from the provision of housing for rent remains at about 3.7% on average in Spain. At the same time, the profitability of the bonds increased from 0.55% to 3.1%. Thus, the yield spread has narrowed to 60 basis points, which is already slightly below the 20-year average of 70 basis points.