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Why is housing in Spain rising while it calms down in Europe?


Why is housing in Spain rising while it calms down in Europe?

In Spain, house prices are on fire, unlike in other eurozone countries that are already feeling the chill of the slowdown. What's going on? It's not that easy to understand, but you have to take a look at a lot of things that are happening at the same time to understand why Spain is going to its guns in this.

In September, house prices in Spain rose 2.1%, while in the eurozone they barely moved 0.1%. How can it be? In the second quarter, according to Eurostat data, our neighbors in France, Germany and the Netherlands saw prices drop by 1.7%, but we rose by 3.7%!

The logical thing would be for it to be the other way around, right? But the rise in prices is directly affecting mortgages (-18.8%) and home purchases (-10.5%), which have been declining for six months according to the National Institute of Statistics (INE). But be careful, the slowdown in these numbers is softer than in other countries.

And here comes the cool thing. There are several things that make the Spanish real estate market unique. The analysts highlight six things:

More families on the track. The number of households has grown a lot, partly thanks to immigration. More families and fewer homes available drive prices up.

The economy is strong. Spain is growing more than the eurozone average, according to the Bank of Spain.

Although unemployment is through the roof, the economy continues to give its all. We have even recovered purchasing power! Spanish families have more cash in their pockets, thanks to higher salaries and less inflation. The result? Many people want to buy a house.

Hello foreigners! Outside investors are cool with our houses. Foreign demand is putting more pressure and raising prices, especially on the coast, the Balearic Islands and the Canary Islands.

Tourist rentals are also doing well. Since COVID restrictions were lifted, the return of tourism has caused owners to rent their homes, reducing supply and raising prices.

The pandemic also influenced construction materials. Fewer projects, inflation in materials, and voilà, construction prices continue through the roof.

And what about the European Central Bank (ECB)? Well, they are planning not to raise rates for now, but they are not going to lower them until after the summer of 2024, according to ING Economics. Furthermore, construction prices will remain high even if the trend has cooled recently.

And the last one. During the pandemic, the Spanish real estate market did not heat up as much as in other eurozone countries. According to the ECB, the overvaluation here is 10.3%, less than in most countries. Hey you!

In short, prices will continue to rise, but at a slower pace. Because? Because mortgages are expected to continue rising until the end of the year and economic growth is expected to cool in the winter months.


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