In June, London’s housing market saw a year-on-year price dip for the first time since 2019, compared with June 2022. This trend is not isolated to the United Kingdom; across the European Union, prices have turned softer. In Germany, for example, the second quarter recorded the steepest annual decline since 2000.
The European housing market is in a period of turbulence, yet Spain shows a contrasting picture on price levels. Mortgage activity has cooled, with about five percent fewer homes sold and around fourteen percent fewer loans signed through July 2023 compared with the previous year. Despite this slowdown, Spain has not seen a halt in price gains, which continued at 3.6 percent in the most recent quarter, marking a long streak of increases over 37 quarters.
The overall view from market analysts highlights a decisive driver: there has been a sustained rise in prices in several European cities since 2008, with acceleration since 2019. Shifting monetary policy has unsettled the price dynamics, leading to adjustments in pricing strategies. Analysts from major firms observe that after the post-crisis rebound, many capitals corrected as expectations normalized. Some note that prior price elevations in places like Germany and the United Kingdom have reached levels that now face downward correction, with forecasts predicting declines of up to 12 percent between 2023 and 2024 in the hardest-hit markets.
Within Spain, opinions differ markedly from those abroad. The board of directors at Tinsa states there is no housing bubble in the country; rather, Madrid and Barcelona have experienced a sustained rise in prices and a long period of robust growth. Mortgage financing remains balanced, and there is no excessive risk concentration or overly aggressive loan demand, according to the same source.
The main reason is lack of supply
The principal reason Spain’s new-construction market avoided a bubble is simple: there has not been oversupply. During the peak bubble years, construction surged everywhere, a pattern not repeated in recent times. Carlos de Almeida explains that housing supply in Spain does not keep pace with demand, noting that completed dwellings in 2021 and 2022 totaled about 182,000, well below the roughly 370,000 new homes built in those two years during the earlier boom.
The market remains data-driven, with CBRE noting shifts in visas and new housing completions as part of the broader picture. Tecnitasa’s leadership stresses that demand still aligns with existing supply. Even with higher interest rates and tighter mortgage criteria from lenders, demand holds up due to several factors, including a significant foreign buyer presence in certain markets and the persistence of cash purchases. In many transactions, buyers come with substantial equity, reducing sensitivity to Euribor fluctuations.
Francisco Inareta, a spokesman for Idealista, cautions that higher rates have not uniformly dampened prices. He points to August data showing price gains in Madrid and Barcelona, alongside more moderate rises in other European capitals such as Lisbon and Milan. He attributes this to limited supply following a buying surge and a post-pandemic recovery in demand. He notes that a large portion of demand is sourced from abroad, while a portion of potential buyers remains unable to participate. The scarcity of new listings could keep prices buoyant in several markets, even as some areas see stabilization in the near term. A CBRE representative emphasizes the ongoing importance of foreign buyers, who now account for a meaningful share of total transactions, reflecting a post-Covid rebound and advantages like relatively lower prices, remote-work appeal, and favorable climate and services around these markets.
The Idealista spokesperson also highlights the stability of buyers’ finances. Official Spanish data show that roughly half of closed deals occur without a mortgage, and Idealista’s own data indicate many prospective buyers already own another property, which reduces financing needs and insulates these buyers from rate hikes. While much demand remains export-driven, enough local demand persists to support price levels. The current constraint is slow new-supply creation, which could sustain higher prices or at least prevent a sharp drop in many markets, according to market observers.
The outlook for prices in the coming months
Tecnitasa’s senior manager forecasts continued price increases in the near term for new construction, given the supply gap relative to strong demand. They see varying outcomes by region, with some areas likely to hold steady while others may see a soft landing as demand softens. They anticipate a mixed picture for second-hand homes, with price trends continuing to depend on regional demand dynamics and overall economic conditions.
Meanwhile, the director of Tinsa Research suggests a stabilizing trajectory for the remainder of 2023, with year-over-year changes approaching zero. In 2024, the trend could include modest downward adjustments. Downside risks stem from the potential bite of higher interest rates on economic growth and mortgage issuance, tempered by restored household purchasing power as inflation normalizes. Overall, a careful, regional approach to pricing is expected as markets adapt to evolving conditions.
Across Europe, experts stress that national stories differ. Spain’s tight supply and resilient demand create an environment where prices may gradually rise or stabilize, while other markets face more pronounced corrections as rates, inflation, and policy measures reshape affordability and investment decisions.
At the same time, market participants are watching how demographic shifts, urbanization, and investment flows influence housing stock. The interplay of demand, supply, financing conditions, and international demand will shape price movements in the months ahead, with some regions more resilient than others as markets move toward a new equilibrium.