Spain the only major western economy to see house prices fall in real terms in 2021

Spain was the only major western economy to experience a real fall in house prices in 2021, according to research from the real estate company Knight Frank.

Spanish house prices increased by 4.4% in 2021, but after taking inflation into account they were down by 2%, reveals the Global House Price Index for 2021 researched and published by Knight Frank. Scroll down to see the table below.

Out of the 56 countries included in the ranking (30% of the world), real house prices fell in just nine territories, or 16% of the sample, and nominal house prices rell in just 3 countries. The other side of the coin says that real house prices rose in 84% of the countries included in the ranking last year (and nominal prices in 95%), showing that house prices were remarkably buoyant in 2021, as the world started to move on from the pandemic in most countries.

Of the nine countries where real house prices fell last year, four of them were in the European Union (Spain plus Malta, Cyprus, and Lithuania), of which Spain was the only big economy – and only big western economy – where real house prices fell last year according to this ranking. The biggest real falls were in Morocco (-7.4%) and Brazil (-4.3%).

Figures from the National Institute of Statistics (INE) confirm that real house prices fell in Spain last year. According to this source, average Spanish house prices rose 6.4% last year, whilst inflation was up 6.5% (6.6% according to Eurostat), meaning a real decline of 0.1% (or 0.2%) – not as bad as the figures from Knight Frank, but still negative. 

However, according to data from the Spanish notary association, nominal house prices were up by 8.2% last year, meaning a real increase of 1.8%, so the story really depends on which data source you use.

In Portugal, Spain’s closest neighbour and competitor for foreign holiday-home investors, nominal house prices rose 11.2% and real prices by 8.2%, suggesting that Spain has its own problems to solve.

Average national house prices might have fallen in real terms last year (depending on your data source), but even according to the NIE there were wide regional variations, with real prices rising by 3.1% in the Balearics, 1.5% in Andalusia, and 1.3% in the Canaries. If you use the notaries, real house prices rose 12.6% in the Balearics last year, enough to keep even demanding investors happy.

If you accept that average real house prices fell in Span last year, what might explain that? Above average inflation is at least part of the answer. Spanish inflation last year was 6.6% compared to a Eurozone average of 5%, 3.4% in France, and just 2.8% in Portugal. But soft house prices in real terms does not appear to have cooled foreign investor demand for property for sale in Spain, as 2021 was a record year for foreign demand for property in Spain.

As far as global house prices go, Knight Frank expect “more muted growth in 2022 as risks mount.”

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Prime Global City Price Index

Knight Frank have also published an index of prime property prices in a selection of global cities including the Spanish capital Madrid. In this ranking only nominal prices changes are used, with Madrid deep in the bottom half of the pack in 32nd place out of 46 with a price increase of 3% (which means a real price decline of 3.5%). Madrid was in good company between Vienna and New York, and six places above London. The table below suggests that, generally speaking, prime city property prices in European cities were relatively subdued last year, at least compared to cities in North America and the Far East.

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