Mark Stücklin
The post-pandemic Spanish housing market boom will run out of steam in the second half of this year, forecast some respected market analysts.
Both AFI (Analistas Financieros Internacionales), and the research department of Spanish lender Bankinter expect sales and prices to cool down this year compared to the post-pandemic boom in 2021. Home sales increased by 38% in 2021 (chart above), and house prices by 5.3% (next chart) according to the Spanish notaries’ association.
Spanish economic growth forecasts are being revised down by most institutions including Bankinter and the Bank of Spain (from 5.4% to 4.5%), whilst unemployment is expected to linger stubbornly around 13%, and inflation rise to 7.5%. The gloomier economic outlook is expected to reduce investor confidence and demand for housing.
Russia’s invasion of Ukraine is not helping the outlook. “The conflict in Ukraine, and the economic sanctions imposed on Russia, are expected to have a severe impact on growth prospects for the coming quarters,” says the Bank of Spain in its latest report. It also said it did not expect the economy to return to pre-pandemic output levels before the third quarter of 2023.
Lower economic growth, higher inflation, lower immigration leading to lower demand for housing, and rising interest rates are all expected to combine to cool the Spanish housing market in the second half of 2022, and going into 2023.
Developers are also expected to hit the brakes, or at least reduce gear, on land purchases and new home building in the face of weaker housing demand, higher financing costs, and a big increase in building costs.
AFI says the economic headwinds “will hold back the growth of housing transactions…to around 15% in 2022,” compared to 38% in 2021. Acknowledging that some of the demand in 2021 was pent up from the pandemic in 2020, AFI wonders “to what point is the market dynamism on display up until now sustainable.”
However, Bankinter is more optimistic about foreign demand for property for sale in Spain, which it expects to keep growing as the pandemic’s travel restrictions recede, and compensate for a fall in domestic demand. In part thanks to growing foreign demand for holiday and relocation homes in Spain, in 2023 Bankinter forecast that the Spanish housing market will “tend towards stabilisation around 500,000 transactions per year, a level we consider sustainable in the mid term, and which will be composed of 100,000 new home sales and 400,000 resales.”
The last two charts below give you a picture of how both sales and prices have been growing strongly each month since early 2021 through to March this year – the latest figures available.
