The real estate market is constantly evolving, as well as the behavior of buyers on it. Although the main driving factor of the decline in demand is the rise in real estate prices and the increase in interest rates on lending due to inflation, this is not the only factor influencing the statistics showing us a reduction in the volume of purchases.
One of these, rarely considered, factors is the so-called "champagne effect". Experts from Comprarcasa explain: "This term describes a situation when demand for a product or service decreases after a period of great success among buyers. This is a metaphor for the behavior of a newly opened bottle of champagne, from which foam and the drink itself, which have been under pressure for a long time, pour out abundantly. And after that, the drink is rapidly losing its energy".
In the real estate market, this situation was formed during the pandemic. On the one hand, people and entire families were trapped in their homes. This made it clear that their current housing is not very adapted to accommodate all the existing tenants, especially if the house should be a workplace at the same time. There is a demand for new housing, including larger ones.
On the other hand, during the pandemic and isolation, the usual types of expenses disappeared, as many forms of recreation and leisure were unavailable. This has led to the accumulation of savings, which in the future could be invested in the purchase of new housing.
When the acute phase of the pandemic passed, life began to return to its usual course, and business became more active, a huge number of people flooded into the real estate market and began actively buying up everything they could while prices were low and loans were available. There was a large unrealized demand and the means to meet it. Of course, such a state could not last forever. On the contrary, the energy of demand dried up quite quickly, within a year.
However, the initial surge in activity has already twisted the statistics to incredibly high levels, which it is impossible to match in a normal situation. That is why in future years we will only see falling and falling consumer demand. And this fall will be strongly supported by inflation and lending rates.
Phenomena such as the "champagne effect" show us the danger in trying to evaluate the market only by dry statistics and figures, without a correct theoretical understanding of observations. And we see such effects on the market all the time.
Without straying far from the pandemic situation, we can see a similar situation in the segment of online entertainment: streaming services and video games first of all. When millions of people were trapped in their homes without access to their usual leisure facilities, of course they turned to online entertainment, which led to the growth of these industries in incredible volumes.
It seems to be obvious that the growth figures obtained were an anomaly of the situation, and not a norm rooted in the strength of the industry itself. Unfortunately, many representatives of the online entertainment industry, including investors, were not very able to understand the essence of what was happening. Having raised their expectations for the next year even higher, they were of course disappointed with the profits they received.
Similar "false statistics" can be obtained as a result of the "low base effect", when the relative growth indicators of a growing economy are much higher than those of an already developed one, despite the fact that in absolute terms the latter shows the best results.
Returning to the Spanish market, the "champagne effect" explains how over the past 2 years the real estate sector has begun to post the highest growth rates since 2007. For example, in 2021, 566,000 real estate transactions were made, in 2022 — 600,000 transactions. This is significantly higher than in 2019 and 2020, when 505,470 and 420,240 transactions were made, respectively.
Taking into account this effect, Comprarcasa expects that 2023 will end with an indicator in the region of 500,000 transactions for the purchase of residential real estate. This indicator is still good, but already below the results of 2019. It will demonstrate the real strength of the Spanish real estate market, and not abnormal growth due to external factors.
At the same time, there are optimistic forecasts for the market. For example, the interest of investors is only growing due to the growing profitability. In 2023, it may approach 8%. Demand from foreign buyers is also growing. According to the Ministry of Transport, Mobility and Urban Development, it grew by 22.5% in the third quarter of 2022. In addition, it is expected that inflation will be brought under control, and interest rates on lending will stabilize.