The effects of an increase in interest rates are finally becoming visible, but not where it was expected. Recent events related to the bankruptcy of SVB and problems with other banks both in the US and Europe are a direct consequence of the regulators' policy of raising the key lending rate. These same events have become the basis for great confidence in the imminent global economic recession.
Markets feel what is happening and change under the pressure of circumstances. If you describe the situation with a metaphor, it looks like an impending avalanche. You do not yet see the rushing wall of snow rushing at you, but you already feel the increasing tremor of the earth and the increasing cold wind blowing at you from the mountain top. Let's turn to the figures to find out how the Spanish real estate market reacts to the deteriorating economic situation.
According to the National Institute of Statistics of Spain (INE), in the last quarter of 2022, residential real estate prices slowed their growth to 5.5% in annual terms, which was the lowest indicator of the last few years. The decline occurred sharply, almost in one quarter. Even then, experts started talking about a "real estate recession" that would lead to a decline in sales, a decline in the rental market, falling prices and many other unpleasant things. A serious blow to the Spanish economy was expected at the beginning of 2023, but the forecasts did not come true. As it becomes clear, the experts made a mistake in their expectations a couple of quarters.
Gonzalo Bernardos, professor of economics at the University of Barcelona, points out that only those who are able to afford the most expensive and exclusive houses can keep a good mood. The premium segment of the residential market is likely to be untouched by a possible recession. Demand, sales and prices are only growing. You can consider as an example luxury housing from Engels & Völkers (EV). The price of a "premium" square meter of their facilities in Madrid, the Spanish capital, increased by 13% over the year. In Barcelona, the growth was 4.1%. In Valencia — 7.6%.
Such high demand and sales are maintained due to the fact that the main buyers of luxury housing in Spain are wealthy foreigners, not Spanish citizens. The Spanish buyer has already fallen to a share of 40% of the total customer demand for the company's offers. The latest data on housing sales from INE give reasons for optimism to premium market participants: there was an increase in prices by 6.6% in annual terms and an increase in sales to almost 56,400 transactions.
Bernardos argues that despite the illusory growth of the Spanish real estate market in general at the beginning of 2023, inflation, a decline in economic production and rising interest rates will affect this sector very soon. In his opinion, buyers with the lowest savings and incomes will suffer the most, as well as, as a result, market segments designed for such consumers. The situation with SVB and other banks has forced other financial institutions to issue money with much greater reluctance. And those that will be issued will be issued at high rates. The premium market is distinguished by the fact that most of its buyers do not use mortgages.