International ratings agency S&P forecast that Spanish house prices will continue rising this year, albeit at a lower rate than in recent years. However, the Coronavirus was an external shock they were not expecting, and the assumptions of their forecast could now be out of date.
Without taking account of any potential negative impact of the Coronavirus on the Spanish economy and housing market, S&P forecast an average increase in house prices of no more than 4.2% in 2020, slowing further to 3.6% in 2021, compared to a rise of 4.5% in 2019.
Sylvain Broyer, chief economist at S&P Global Ratings, notes that Spanish house prices are “cooling after four consecutive years of double digit growth” following a significant decline in home sales towards the end of 2019.
S&P expect Spanish house prices to decelerate in the next two years as the market enters the mature phase of the cycle, and buyers push back after years of double-digit price inflation in the biggest markets like Barcelona and Madrid.
High demand in key markets has driven up house prices, putting them out of reach of an increasing number of buyers, which eventually acts as a brake on prices.
“This must definitely weigh down on demand and the growth of prices, despite the favourable economic and financial conditions,” says Broyer
S&P forecast a similar picture around the rest of Europe, with lower house price inflation as markets enter the mature phase of the cycle, and high prices reducing demand by excluding a growing number of potential buyers.
At the time of publishing their report, the analysts at S&P were reasonably optimistic about the Spanish economy, on which the housing market depends. They forecast rising consumption, employment and incomes, though lower than last year, with output up 1.7%, compared to 2% last year. Low interest rates are also expected to help support housing demand this year.
However, the S&P report was written before the Coronavirus pandemic grew to current proportions, which could blow all previous forecasts off course. The situation is changing fast in Spain, where it looks like we are about seven days behind Italy. Depending on how the Coronavirus situation develops in Spain, the S&P forecasts could turn out to be too optimistic.