The European Central Bank (ECB) predicts that interest rates on lending, the growth of which has seriously increased since July 2022, will not reach the peak of growth until at least the summer of 2023. Along with the general slowdown in the global economy, the continuing rise in inflation, rising prices for raw materials and energy, as well as the armed conflict in Ukraine, all this creates conditions for an imminent recession in the coming year.
The last increase in the key lending rate for Europe, implemented by the ECB, was 50 basis points. It happened on December 21, 2022. As a result, at the end of the year, the level of the key rate stopped at 2.5%.
Despite the fact that the latest increase turned out to be 25 basis points lower than previous growth cases, the ECB indicates that it is not worth expecting growth to stop. The regulator will continue to raise the rate in 2023, until, in their opinion, the desired result is achieved. The only difference is that perhaps the «new norm» will be an increase of not 75, but 50 basis points.
In general, the refinancing rate today is 2.5%, the deposit rate is 2%, and the loan rate is 2.75%. While the ECB is trying, by existing methods, to contain the growth of inflation, Euribor is already trading at almost 3%. Mortgage lending is becoming more expensive and there is no end in sight to this process.
Let's pay closer attention to the real estate market itself. According to BNP Paribas Real Estate, the volume of investments in the Spanish real estate sector fell in the last quarter of 2022 to 2.4 billion euros. Although the indicators of attracted investments are record in annual terms, they increased by 35% by 2021 and by 21% by 2019, the dynamics of the last quarter clearly demonstrates the coming future.
The situation of businesses and developers
Business and investors finally realized that endless growth from the local market should not be expected, it was not worth it initially, so an increasing number of people, an increasing number of businesses, began to leave Spain. Those who remain, for example, companies such as Inmobiliaria Colonial and Lar España, rely on offices and shopping centers — the commercial sector.
It is quite undeveloped and has great potential for growth, but at the same time carries high hidden risks of falling prices. The same perspective that the residential segment is likely to face in the near future. In the market as a whole, investors are betting on assets that suffer little from location and seasonal attractiveness.
The problem of housing affordability
With the Euribor rate ranging from 2% to 3%, fewer and fewer ordinary buyers, primarily Spanish citizens, are ready and can afford to buy new housing. The fall in housing prices will eventually happen when the growth reaches critical values, but when exactly this situation will happen is unknown. At the same time, borrowed money is already too expensive for most people, so fewer and fewer of them are thinking about buying real estate. Especially when other living expenses are growing month by month.
Interest rate growth forecasts
At the ECB meetings scheduled for February and March, rates may be raised by another 50 basis points in both cases. If the ECB decides to adhere to the «new norm», then at the meetings in May and June, we should expect an increase of 50 points. Nevertheless, some forecasts suggest that in May and June the growth will be 25 basis points. But this is a very uncertain figure, which can easily change due to a real increase in inflation in the coming months. Nevertheless, we should expect at least a 3.5% deposit rate by the middle of the year.