this inflation and rise interest rates have had a significant impact. Real estate. Service specialists of studies CaixaBank Research These days, they’re compiling data on a forced march, plotting possible scenarios and moving forward in analyzing what the evolution of home sales in Spain will be in the coming months. The preliminary conclusion fraught with uncertainty is that there will be a clear slowdown this year and next year, but unlike what happened in 2008, the situation will not lead to a serious contraction in activity.
Judith Montoriolprofessional CaixaBank ResearchHe thinks that the impact of the increase in interest rates and inflation will lead to a moderate decrease in real estate sales in the context of moderate price increase.
The slowdown Montoriol expected comes amid high inflation (10.4% in August), eroding households’ purchasing power and forcing central banks to tighten financial conditions. However, this expert expects inflation to begin to normalize by 2023, allowing interest rates to remain at limited levels from a historical perspective. This “containing” level of Euribor will be around 1.8% in the fourth quarter of 2023. All this should “make it easier to limit the adjustment process of the Spanish real estate market and to ensure that the feared contraction of the sector does not happen.” Therefore, according to these forecasts, it is expected that the number of sales will decrease by 2.8% and 10.8% in 2022 and 2023, respectively, and the housing prices are expected to slow down to 2.2% in 2023 from the 6.6% forecast for 2022. .
Montoriol emphasizes that the strength of demand in recent months is largely due to the changes in housing preferences after the pandemic and the transfer of some of the savings accumulated during the pandemic to the real estate sector. In addition, household and financial sector balance sheets are much healthier and there is no net excess supply that will cause contraction.
In this context, the rate family mortgage effort (the portion of income allocated to housing) will increase to approximately 40% (38.6%). In parallel, the increase in financing costs will also affect investments. developers and buildersit can reduce the supply of new housing (something that tends to involve high prices). CaixaBank Research’s analysis covers both new and used housing markets (20% and 80% of sales in Spain). Montoriol believes that the impact of the increase in building materials prices is greater in areas where land prices are cheaper, but also has an impact on the increase in housing prices as a whole.
The ECB’s launch of a new cycle of rate hikes to combat inflation raises doubts about how the real estate sector will react in the face of rising money prices. “The scenarios are uncertain,” Montoriol admits, but stresses that confidence in the strength of the market remains. However, the state of the gas market is included in predictive models these days and scenarios are difficult to predict with multiple upside risks. However, Montoriol expects inflationary pressures to be moderate. Currently, the most plausible forecast is that purchases and sales will fall by no more than 10% in 2023. The rise in interest rates increases the mortgage effort that households have to make to own a home, bringing about a cooling of demand. These factors created a real clock a loop visually parameterized by experts on a coordinate axis.
clockwise evolution
This visual way of showing the moment of the cycle the housing market is in, reflects the evolution of housing and sales prices in Spain during the cycle. In general, weakness in the real estate market begins to show as the time to sell a house increases and transactions decrease (slowing zone), and after a few quarters this turns into a moderation or even a decline in prices (contraction zone).
This phase of market adjustment is usually deeper and lasts longer as more imbalances accumulate in the previous expansion phase. Therefore, the recessive phase from 2009 to 2013 was particularly long and intense: the clock was in the contraction zone for five years and was far removed from the beginning of the coordinates. In contrast, in 2020 the real estate sector was temporarily regulated due to the mobility restrictions associated with the pandemic.