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Demand is Pushing Up Housing Prices

Demand for housing is causing prices increases

Demand for housing is causing prices increases

The latest price index data, posted by the INE, reflects an increase of 2.5% compared to the previous quarter and a year-on-year increase of 4.5%. This confirms that demand for homes continues to be very strong despite increases in interest rates over recent months.

Furthermore, in November, the monthly variation in the price of second-hand housing rose by 0.6% and its interannual variation was +6.2%. This brings the average price to €2,172 p/m² in November. It is worth noting, however, that this increase (6.2%) is the lowest monthly increase so far in 2023.

The data for the third quarter once again reinforces housing growth, despite sharp rate increases by the European Central Bank and the rise in the Euribor, which exceeded 4%. This situation of aggressively rising financing costs, added to inflationary tensions, is already having effects on the pockets of the most vulnerable families, who are increasingly losing purchasing power. This influences the cooling of part of the purchasing demand. However, 28% of current buyers have already rejected the idea of buying in the short term,” explained María Matos, spokesperson for Fotocasa.

Despite the rise in rates and the increase in mortgage prices, the majority of purchasing demand remains strong and intense. In the last year, the interest in buying a home is changing the profile of buyers to a more specific one, made up of people who are solvent at a socioeconomic level. And the demand for housing as replacement is very important and that they are not needing financing to buy a home and they sell a home to buy another. And as is typical of the moment of economic uncertainty, new figures are also emerging such as small savers and large investors, in addition to foreign buyers, who are not as vulnerable to the change in monetary policy as they require less bank financing.

As for price, the real estate index continues to show large increases in prices and, specifically, in the third quarter of the year it rose 7% year-on-year, showing that the great latent demand that exists in the sector currently continues to push prices up while owners resist lowering prices. Probably an important part of this remaining interest is because there are many people waiting for a large price drop to occur. A situation that is difficult to predict.“, said Matos.

At the moment, no significant price declines are expected; what is certain is that the tensions between supply and demand will make an extensive correction difficult. Interest in buying still exceeds pre-pandemic levels, and the reduction in supply during this past year will make it even more difficult to reach a balance quickly. And we predict that by the end of the year the price increase will be close to 5%.

Demand for New Property

New property for sale deserves a special mention, since the price of new property increased by 4.1% in the third quarter, and by 11% year-on-year. This trend will continue in the long term because this type of brand-new housing is experiencing an unprecedented boom. In fact, according to data, 20% of current home buyers are exclusively looking for new construction and this intense demand is pushing up the prices of this type of home in the face of a shortage of stock.

It is not likley that new construction will suffer any moderation and even if demand continues to be so strong in the coming months, we will see prices continue to increase. Not only because of runaway inflation, which affects the cost of materials, production and logistics, which has caused the slowdown and paralysis of some promotions, but also because of the low production levels of new construction. The difficulties of developers and builders in purchasing land, the lack of qualified labour in the sector and the increase in the price of materials derived from the rise in energy prices and the war in Ukraine, is causing the stock to be low.

Keep in mind that we have come from two years of great sales activity and 2023 will also close with a sales volume close to 550,000 homes sold. A large volume of product has been sold without time to be replaced, therefore, the gap between supply and demand is real, causing tension in prices and this tension is likely to continue throughout 2023 and a good part of 2024.

Prices by Autonomous Community

If we look the prices of housing for sale compared to a year ago, we see that 16 communities saw increased year-on-year prices in November. Unlike other months, in which increases of more than 10% occurred in six communities, in November it was reduced to three: Canary Islands (22.5%), Balearic Islands (17.3%) and Navarra (10.9%). They are followed by the communities of La Rioja (9.2%), Valencian Community (8.8%), Madrid (8.3%), Andalusia (7.8%), Region of Murcia (6.5%), Aragón (4.6%) , Basque Country (4.6%), Cantabria (4.5%), Asturias (4.3%), Catalonia (3.1%), Castilla-La Mancha (2.8%), Castilla y León (2.1%) and Galicia (2.0%).

Regarding the ranking of Autonomous Communities with the most expensive second-hand housing prices in Spain, the most expensive are found in the Balearic Islands and Madrid, with prices of €3,802 p/m² and €3,652 p/m², respectively. They are followed by the Basque Country with €3,055 p/m², Catalonia with €2,737 p/m², the Canary Islands with €2,389 p/m², Navarra with €2,058 p/m², Andalusia with €1,974 p/m², Cantabria with €1,878 p/m², Aragon with €1,738 euros. /m2, Valencian Community with €1,718 p/m², Galicia with €1,707 p/m², La Rioja with €1,658 p/m², Asturias with €1,650 p/m², Castilla y León with €1,474 p/m², Region of Murcia with €1,280 p/m² , Extremadura with €1,196 p/m² and Castilla-La Mancha with €1,189 p/m².