Improved outlook for Spain’s real estate sector
Since the previous issue of the Real Estate Sector Report was published in July 2023, there have been several developments in the economic sphere that allow us to be more optimistic about the outlook for Spain’s real estate sector in 2024.
March 8th, 2024
- Since the previous issue of the Real Estate Sector Report was published in July 2023, there have been several developments in the economic sphere that allow us to be more optimistic about the outlook for Spain’s real estate sector in 2024. On the one hand, the fall in inflation in the euro area since last autumn has led to a major shift in the anticipated trajectory of interest rates, and the ECB is expected to start lowering them before the summer. On the other hand, the Spanish economy has performed substantially better than predicted: Spain’s GDP grew by 2.5% in 2023, whereas at the beginning of the year we were anticipating an advance of 1%.
- The real estate market has also had a better 2023 than previously forecast. Although the number of home sales fell by around 10%, the decline was less sharp than anticipated and the year actually ended up being the second best in 15 years (the best was 2022, with 650,000 sales). The price of housing also slowed in the first half of 2023, but in the second half its growth rate accelerated, reaching 5.3% year-on-year in Q4 2023. On the supply side, the stabilisation of construction costs allowed the year to end with a similar number of new home construction permits to that of previous years (around 110,000 homes).
- For the first half of the year, we expect this gentle slowdown to continue, as interest rates remain high and the economic environment continues to show signs of relative weakness. However, in the second half of 2024, as the downward path of interest rates takes hold and economic activity gains traction, we expect the real estate market to regain vigour and record new growth. Thus, 2024 will be a year of transition in anticipation of 2025, when we expect the real estate sector to expand once again. Here at CaixaBank Research, we have improved our forecasts for Spain’s real estate market for 2024-2025: we anticipate an increase in home prices of 2.7% and 2.5%, respectively, and sales of around 550,000 units per year. In the first article of this report, we set out this new forecast scenario in greater detail.
- The good performance of Spain’s real estate market is largely explained by the resilience of demand despite the difficult economic context. In the second article of this report, we analyse one of the main factors that has driven the demand for housing in Spain in the last two years: population growth. Between 2022 and 2023, migration flows have been very significant and Spain’s population has increased by around 1 million people, a level not recorded since the migration boom of the first decade of the 21st century. The areas where home prices have grown the most are the provinces and municipalities that have experienced the greatest population growth, such as tourist areas, and large cities and their urban areas of influence. Meanwhile, prices remain stagnant in areas suffering depopulation.
- In the third article of this report, we investigate how real estate markets in the major advanced economies have responded to the tightening of financial conditions. Overall, despite significant differences between countries, for now home prices have withstood the rise in interest rates relatively well. The shortage of new housing in major developed markets accounts for much of the downward resistance shown by home prices. Regulatory restrictions to increasing supply and a lack of public investment in the vast majority of OECD countries will be exacerbating the housing affordability problems in locations that are experiencing higher demand, such as large cities.
- In the last article of this Sector Report, we focus on Spain’s commercial real estate market. After registering sharp declines in investment in 2023, we expect to see a revival as 2024 progresses, thanks to the anticipated fall in interest rates and an improvement in the fundamentals that determine the behaviour of the different segments.
