The rise in mortgage rates and the rise in house prices continue to weigh on home sales in Spain. It fell by 21.5% in May. 44,013 houses changed hands. And that’s the lowest figure for this month since 2020, during the coronavirus pandemic.
The figures were published by the National Institute of Statistics (INE). On a month-on-month basis (May compared to April), transactions were down 17.1%, while in the first five months of 2024 they were down 4.1% compared to the same period last year. This means that 10,781 fewer houses were sold. No autonomous region was spared from the decline in home sales. Asturias, Andalucia, Catalonia, Galicia, Madrid and the Valencian Community were the worst off.
Interest rates and house prices
In April, there was still a strong increase, of 24%, as a result of the effect of Easter. The INE data now show that this extraordinary rebound was temporary. The rise in interest rates and mortgage rates continues to weigh on transactions, despite the 0.25 basis point rate cut by the European Central Bank (ECB) in June and the fact that the Euribor was 3.65% that month, a slight decrease compared to May.
The continuous rise in house prices does not help either as many Spaniards postpone the decision to buy. Moreover, a large proportion of them cannot afford a down payment or mortgage repayment.
Expectations that house prices will continue to rise
Furthermore, experts do not expect prices to fall this year. According to the real estate company Solvia, house prices will close with a year-on-year increase of between 2% and 3% in 2024. And Sociedad de Tasación estimates that the average price of new homes will reach a new high by the end of 2024, at €2,979 per square metre with a positive year-on-year variation of 3.8%, according to forecasts announced by the company on Monday.
Existing home market most affected
But it is the existing housing market, which accounted for 79.3% of transactions closed in May, that is most affected by the slowdown in sales. In May, 34,908 homes were sold, 23.2% less than in the same period last year. So far this year, the decrease is 6%, according to INE.
New construction
Only 9,105 new-build homes were sold, down 14.4% year-on-year. The cumulative decline since January is 4%. But there is an acute shortage of new-build homes. “In recent years, 90,000 homes have been built annually. In the period 2022 and 2023, there were 275,000. With these data, we estimate that, projected until 2025, we have a shortage of around 600,000 homes,” Roberto Blanco, Director of Macro-Financial Analysis and Monetary Policy at the Bank of Spain, said last week. In addition, construction costs continue to show high peaks in the historical series, having risen by about 30% in four years. “This is affecting real estate development,” says Villanueva, who emphasises that the housing problem is a problem of supply and lack of land generation.
Autonomous communities
Regarding the geographical distribution of sales and purchases in May, the autonomous communities with the smallest decreases were the Basque Country (-3.0%), La Rioja (-8.6%) and Extremadura (-14.2%). On the other hand, Asturias (-25.8%), Andalucia (-25.0%) and Catalonia (-24.5%) showed the largest decreases.
Second half of this year
The home sales market is stagnating, although the experts paint a slightly different picture for the second half of the year. Sociedad de Tasación speaks of “a second half of the year with recovery and an incipient expansion of real estate and mortgage activity”. The appraiser expects a 0.25 percentage point cut in the official interest rate in the last quarter of the year. Disposable income should continue to rise in a context of rising wages and accumulation of savings rates. This may encourage purchases in the rest of the year.
“If the predictions about the de-escalation of interest rates come true and there are two more declines in the second half of the year, we will again see better access to housing, said María Matos, director of research at Fotocasa. Then the conditions for access to mortgage credit will improve and home sales will pick up again. Guarantees will also stimulate this demand. Purchase support will play an important role in the second half of the year. As far as house prices are concerned, almost no expert expects them to fall.
Source: inspain.net
