BBVA Research forecasts property market stability in 2023

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One of Spain’s biggest banks forecasts a small decline in home sales and a small increase in prices in 2023 after this year’s boom.

BBVA research, the research arm of BBVA, Spain’s second biggest bank, forecasts a modest decline in sales next year after this year’s big surge, and a similarly modest increase in house prices of around 2%.

Writing in their H2 2022 half-yearly Real Estate Observatory report, the analysts at BBVA argue that the “real estate market is starting to feel the economic slowdown and the rise in interest rates. This context justifies a contraction in sales in 2023, despite which the level will remain high. Housing starts will stagnate in 2023 and the nominal price will grow by around 2%.”

Reviewing the performance of the Spanish property market in the second half of the year and looking forward to what to expect next year the report makes the following key points:

  • The rise in interest rates, which placed the Euribor-12-month rate at 2.6% in October, is taking place in a context of a lower financial burden on households than in 2008. In addition, the composition of the mortgage portfolio, with older loans and a higher proportion of fixed-rate loans, will reduce the impact of the rise in interest rates.
  • Faced with an expected tightening of credit conditions, and the consequent rise in housing affordability, households may be bringing forward their home buying decisions in recent months.
  • The cost of some building materials has started to decrease with respect to the 1H22 peak. However, most of them remain at relatively high levels. In addition, the data on wages agreed in collective bargaining agreements suggest a relative shortage of labor in the sector.
  • Housing supply continues to perform worse than residential sales. In the first eight months of the year, housing sales grew by 12.7% y-o-y, while building permits rose by 0.2%. Meanwhile, prices rose by 6.1% YoY in 1H22, with the increase in 2Q22 being lower than in 1Q22.
  • The macroeconomic scenario justifies a slight contraction in sales in 2023, despite which the level will remain high. Housing starts, after a correction in 2022, would stagnate in 2023 and house prices would register nominal growth of around 2%, implying a correction in real terms (-2.4%).