Rising interest rates are triggering uncertainties in Spain’s housing market. Real estate analytics teams are revisiting forecasts after the European Central Bank released updated models projecting price declines and slower activity in the near term. While some forecasts are being revised downward, analysts still anticipate a gradual slowdown in price growth for this year and next, pushing back against the idea that values will drop sharply. A recent Solvia study noted that housing prices may grow more slowly by the end of 2022, with increases in the 3% to 5% range. These outlooks look optimistic when compared to the 2.4% uptick seen between April and June 2022 and the 3.1% rise in the previous quarter. Trading volume also dipped by 0.2% quarter on quarter, signaling a cooling in signing activity for the remainder of the year.
The market is also grappling with the notion of price moderation and softer turnover. Most professionals emphasize risk protection, yet higher rates are expected to bite more deeply into both pricing and buyers’ decisions. The Solvia analysis shows a pullback in activity across 28 provinces versus the first quarter of 2022, even as the year began with a 19% year-on-year rise in approved properties. The changing trend is hard to miss.
“The real estate market stayed vibrant through the second quarter of 2022, with transaction and price levels well above last year. Today, however, the broader economic context marked by inflation, higher rates, and tighter housing supply points toward a period of moderation”, Solvia explains. Yet sales and purchasing professionals remain watchful, wary that further rate hikes could curb both sales and prices. New mortgages signed in October face rates above 2.5%, and even with fixed rates below 3%, obtaining a loan remains challenging.
Confidence in a soft landing
Prices rose 8.3% year over year in the second quarter and climbed 2.4% from the previous quarter, yet early signs of slower momentum are emerging. Jose Luis Bellosta, chair of Solvia, downplays the worry: he notes that while first-half dynamics were tempered by economic uncertainty, price levels should stay positive, especially in the resale market. He also highlights that supply has not yet kept pace with demand, a view echoed by CaixaBank Research, which stresses that inflation and interest rates are not yet driving sharp alarm signals.
The capitals Madrid and Barcelona remain among Spain’s most expensive, with Madrid leading the way and posting a double-digit annual rise. Madrid currently sits around 3,492 euros per square meter, with Barcelona close behind at roughly 3,564 euros per square meter after a steady climb in prices throughout the year. These figures illustrate the continued premium required to secure urban property in major hubs.
A shelter in uncertain times
As moderation looms and a possible price dip becomes more plausible, the market still leans on the uncertain economy, encouraging cautious savers to view housing as a safe haven. Some real estate firms note a shift toward purchasing affordable homes and considering rental options as a hedge against inflation. Investors see housing as a tangible asset that can shield savings from inflation and potentially generate rental income, which could offset rising costs of goods and materials.
“Investing in housing provides a protective layer for savings during inflation, thanks to a tangible asset that tends to resist wild volatility. When rent income is added, housing investment stands out as a strong option. Inflation and rising input costs could signal further price increases down the line,” observes the head of Alfa Inmobiliaria.
Inflation versus rates: what to know
Some economists argue that real estate can function as a safe place for capital during inflationary periods. With the spread between money costs and inflation wide, robust assets that offer returns amid high inflation become appealing. Buying a home to rent can help cushion rising rates and persistent inflation. Experts caution against leveraging too much when purchasing a property, suggesting a prudent rule of thumb to avoid putting down less than 60% of the purchase price. Given the high cost of materials, substantial remodeling is also not advised. The recommended approach is to minimize debt, carefully evaluate property location, and ensure the rental market demand aligns with the asset’s strengths. It is also wise to steer clear of buildings with poor construction or maintenance that could complicate market entry.