The real estate market in Spain is in decline: the reasons
In the fall of 2022, the real estate market in Spain showed a drop in demand. The main factor in the decline in activity was an interest rate increase, which should have slowed the growth of inflation.
Last year, the Spanish regulator repeatedly revised the size of the interest rate. Before that, it had been kept at 0% since 2020, the same rate that was in effect in many European countries and was adopted to stimulate the economy after the pandemic. However, 2022 changed everything and in the summer the central bank of Spain decided to raise the rate to 0.5%. By the end of the year, the rate rose to 2%, which should have slowed down the increase in inflation, which reached a record 10.2%.
The interest rate revision had an immediate effect on the real estate market. The demand for objects fell, even despite the decline in prices. According to experts, the trends in the sector will continue until the end of 2023. Optimistic forecasts suggest a 0.9% decline in real estate values, while pessimistic forecasts suggest a 3% decline.
Demand will also continue to decline, primarily due to the size of interest rates. It is possible that the latter will rise even more, but even if it stays at the current level, activity in the market will not increase. Buyers who planned to buy real estate by taking out a mortgage are in no hurry to take out a loan. They took a wait-and-see attitude in the hope that rates will fall.
A number of Spanish banks consider the likelihood of declining activity in the real estate market to be 15%, and the company Redpiso predicts a fall of 20-30%.
In addition to raising interest rates, financial institutions have also tightened requirements for mortgage loans. 17% of banks in Spain have increased the list of criteria for approval of the application, which is associated with the desire to protect themselves from bad loans in the future. The fact is that the purchasing power of the population has fallen and there is a high probability that not all borrowers will be able to make the monthly payments. Trading Economics notes the decline in the housing index, which is seen in the country for the first time since the introduction of the lockdown in 2020.
At the same time, experts warn that there will be no sharp drop in housing prices. The decline in value will result from the fact that houses will be increasingly difficult to sell. The object will be on the market for a long time, and sooner or later sellers will lower the price to close the deal. There is no oversupply in the sector, but experts predict a decrease in activity. The winners in this situation are buyers who have the full amount of money to make a purchase.