One of the greatest aspirations humans have always had is the ability to foresee the future. This would be a very useful “ability,” because it would allow us to make important decisions without fear of making a mistake. For example, choosing the perfect time to buy a new home, since timing in this case significantly affects the profitability of the transaction.
In 2022, 649,494 homes were sold in Spain according to the National Institute of Statistics (INE), 18% of which were new construction (117,035). Therefore, as we head into the second half of 2023, you may be considering buying a new home. And to help you make the best decision, in the following sections we’ll analyze how home prices have been trending so far this year and break down the outlook for the coming months.
What do the home-buying forecasts for 2023 indicate?
Since the second half of 2022, the trend observed in Spain has been a slight decline in the housing market. According to the forecast by BBVA Research’s Real Estate Observatory, published last April based on data from the first quarter of 2023, “housing transactions are expected to decline by about 30% this year.” Therefore, this will be a “significant” adjustment that will not prevent the number of transactions from remaining around half a million, at “a level similar to the annual average between 2015 and 2019.”
The reasons for this decline (already evident in the early part of the year) are:
- The rise in interest rates, which naturally affects mortgages.
- Slower economic growth due to the effects of the pandemic, the recent energy crisis, and the war in Ukraine.
- Decline in household savings as a result of the pandemic and rising inflation.
Consequently, rising prices—especially for consumer goods—have reduced Spanish households’ ability to save and eroded their wealth. This loss of purchasing power is further exacerbated by increases in variable-rate mortgage payments due to the upward trend in the Euribor since the end of last year.
Banks take all these factors into account and are now applying stricter criteria when approving loans. As a result, the general conditions currently applied to new applicants are stricter than they were a few months ago, which is naturally affecting the market and raising some concerns among those who had planned to buy a home soon.
How are housing prices trending in 2023?
If we assume that the number of home sales is expected to drop significantly in 2023, it stands to reason that this year will be the first in which the real estate market will see a slowdown in the upward cycle that began eight years ago. At least as a general trend, since each city will experience its own market fluctuations.
At this time, we have access to data for the first two quarters of the year. According to “Tinsa” (Real Estate Appraisals), a general slowdown in the rise of home prices is already clearly evident . Specifically:
- In its report for the first quarter of 2023, the price increase was only 0.9%, compared with quarter-over-quarter increases of 2.2% and 2.1% in the third and fourth quarters of 2022, respectively. Thus, between January and March, the average price stood at 1,713 euros per square meter, up 6.3% from the same period the previous year.
- In its report for the second quarter of 2023, appraisals of new and existing homes reaffirmed this trend of slowing price growth. Specifically, the average price rose by 0.6% (1,723 euros/m²) compared to the previous quarter, bringing the year-over-year change to 4.8%. This is the lowest quarterly growth rate since the first quarter of 2021.
Thus, we can say that in these first six months of 2023, housing prices have stopped rising and are trending toward moderation; therefore, if this trend continues in the short term, prices will eventually stabilize. This should not be interpreted as a collapse, at least in the short term, since the outlook is that citizens’ purchasing power will improve thanks to better control of inflation, sustained employment, and the expected moderation in market supply.
What is the projected trend in housing prices in 2023 by autonomous community?
For its part, “UVE Valoraciones” predicted last March that the average home price in 2023 would range from a decline of -2.52% to an increase of 2.3%, depending on economic trends. This predictive model also indicates that Madrid will be the only city where prices will fall under both the pessimistic scenario (-0.2%) and the optimistic scenario (-6.6%); while in Barcelona, prices will range between 3.2% and -4.7%.
This study analyzed three hypotheses and is based on the calculation of a long-term price trend line, using parameters related to household income, employment, and financing conditions. Thus, its conclusions also indicate that “the most likely scenario for Spain as a whole is nominal price stability.” However, it also anticipates greater price declines during the year in provinces with a high proportion of tourism in their economies, with the exception of Alicante.
In contrast, the Tinsa study for the second quarter of 2023 indicates that growth rates across the autonomous communities ranged from 4% to -6.5%, with notable growth in La Rioja (8.3%), Aragón (8%), and Cantabria (7.5%); while Madrid posted 4.4% year-over-year growth and Catalonia 1.7%. In fact, Catalonia is the region with the lowest increase in average prices over the past year nationwide.
What will influence housing price trends in 2023?
As we have already noted, and although it is impossible to predict the future, the signs we are seeing lead us to believe that housing prices will gradually level off. However, what ultimately happens will depend on the following factors:
Changes in the Euribor
The Euribor closed out June above 4%, a rate not seen since 2008. It cannot be ruled out that it will continue to rise through the end of 2023 and even reach 4.5%, after which it will begin to fall gradually.
Therefore, in the short term, variable-rate mortgage payments are expected to continue rising. This will continue to have a direct and negative impact on home sales for some time, since changes in the Euribor tend to have a delayed effect on the market.
The Lawsuit
The outlook is that it will decline during the second half of 2023. Either because core inflation remains high (5.9% at the end of June) or because the European Central Bank (ECB) raises interest rates to curb it, which would trigger a recession that would also lead to a drop in housing demand.
Is 2023 a good year to buy?
That’s the million-dollar question. If we look at prices compared to 2022, the answer is yes. But there’s a caveat: financing will likely be more expensive given the current state of the mortgage market. That’s why the key to making a good decision is to choose an appropriate monthly payment that doesn’t run the risk of skyrocketing in the short term due to the expected rise in the Euribor in the coming months.
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