Where are house prices growing the most in Spain?
House prices have risen sharply since the middle of last year but the trend is very uneven across different municipalities and regions. One factor contributing to this geographical heterogeneity is the recovery in foreign demand: house prices in the most tourist-oriented municipalities are growing more vigorously than in non-tourist areas. CaixaBank Research’s house price forecast models, based on big data and machine learning techniques, point to a moderate slowdown in house prices over the coming quarters.
The general trend in house prices is upward throughout Spain but the rate of this growth is very uneven.4 In Q1 2022, almost all provinces recorded a year-on-year rise in house prices (only Soria, Zamora and Álava saw a slight decline), while more than half the provinces recorded increases in excess of 5%. Tarragona, with a year-on-year increase of 11.1%, is the province where prices rose the most. As a result, house prices are already above their pre-pandemic levels (Q4 2019) in 80% of the provinces, and the remaining 20% are very close to achieving this.
The vast majority of municipalities with more than 25,000 inhabitants also posted widespread growth (only 10% saw a moderate decline in Q1 2022) and nearly 20% of towns recorded gains of more than 10%. This growth at different speeds is increasing the spread of house prices: the gap between the most expensive province (or municipality) and the cheapest continues to widen.5
- 4. In this article we use the house prices published by the Ministry of Transport, Mobility and Urban Agenda (the appraised value of free housing), as these are published broken down by province and for municipalities with over 25,000 inhabitants.
- 5. Other measures of this spread, such as the standard deviation for house prices, are also at their highest levels since the start of the data series (Q1 2005), both at a provincial and municipal level.
Other measures of this spread, such as the standard deviation for house prices, are also at their highest levels since the start of the data series (Q1 2005), both at a provincial and municipal level.
CaixaBank Research’s house price forecast models, which use large amounts of information (big data) and are based on machine learning techniques,6 point to these growth rates easing over the coming year. Specifically, according to these models the average price in municipalities with over 25,000 inhabitants will increase by 5.8% year-on-year in Q1 2023 (compared with 8.1% in Q1 2022).7 Housing is expected to appreciate by more than 10% in 16% of the municipalities (compared with 20% today). And it is also worth noting that the lower portion of the spread has grown: the percentage of municipalities for which a decline in house prices is expected one year from now is 14%, compared with the current figure of 10% (see the last column of the chart below).
- 6. These models use GDP forecasts by autonomous region as the main macroeconomic factor and a large number of socio-demographic and real estate sector indicators (based on internal CaixaBank data and external data from reliable sources) to capture the different trends in the real estate market for each location.
- 7. The average house price in each municipality, weighted by its population (2021).
The remarkable appreciation in housing that has occurred over the past year has been supported by underlying factors, common throughout Spain, which have driven the increase in housing demand at an aggregate level (including the end of pandemic-related restrictions, job creation, favourable financial conditions, etc.). At the same time, more local factors are pushing up the demand for housing in certain areas. This is particularly the case of foreign demand, responsible for a large part of the sharp rise in sales recorded on Spain’s Mediterranean coast and islands since mid-2021.
The chart below shows that the price of housing is rising more steeply in those provinces where the relative share of purchases by foreigners is greater. Alicante, the province with the largest share of foreign purchases (37%), posted a cumulative increase in house prices of 7.4% between Q4 2019 and Q1 2022 (this fell by 2.2% in 2020 but has recovered strongly since then). The Balearic Islands, Malaga, Santa Cruz de Tenerife and Girona are other tourist provinces that have also seen a sharp rise in house prices.8
- 8. Note that this correlation between foreign demand and price growth does not imply causation. The article «The Impact of the COVID-19 Health Crisis on the Housing Market in Spain» (Bank of Spain, 2021) finds that, once population growth is taken into account, the effect of net purchases by non-resident foreigners on house prices is not statistically significant.
A similar pattern can be seen at a municipal level. The chart below shows the trend in house prices in municipalities classified as tourist and non-tourist based on the percentage of expenditure via CaixaBank POS terminals using foreign cards.9 In 2020, tourist municipalities saw a sharper correction in house prices (–2.1% year-on-year in Q4 2020 vs. 3.4% in non-tourist municipalities) but the rise since then has also been sharper (10.2% year-on-year in Q1 2022 vs. 6.3% in non-tourist municipalities). If we look at the cumulative house price increase between Q4 2019 and Q1 2022, their growth is very similar (9.8% vs. 9.5%).
- 9. Official data on housing sales by municipality do not break down the data by origin of the buyer, so we have used internal CaixaBank data to classify the municipalities into tourist municipalities and the rest. Specifically, if expenditure using foreign cards via CaixaBank POS terminals accounted for more than 10% of the total in 2019, we have classified this as a tourist municipality.
House prices are growing more strongly in tourist areas but a somewhat more marked slowdown is expected in these areas over the coming year.
Looking ahead to the next few quarters, forecasts regarding the trend in house prices at a municipal level10 show the growth rate easing, both in tourist and non-tourist municipalities. In particular, the model predicts an average house price increase of 4.8% in non-tourist municipalities and a slightly higher increase of 7.7% in tourist municipalities. These forecasts, although still positive, are more contained than the growth figures recorded in Q1 2022.
- 10. Obtained from the machine learning models of CaixaBank’s real estate big data tool.