No respite for house prices: sector expects 6% growth in 2025 | Financial markets

The question is not whether home prices will continue to rise next year, but by how much. A rise in house prices in 2025 is taken for granted given that supply shortages in the face of growing demand for housing will continue, with no solutions in sight to ease tensions in the coming months. in real estate market prices. Homes will become more expensive in 2025, especially in large cities and where there is little new construction, although the first-time buyer will be able to find cheaper loans. Relative relief, available only to those who have already saved significant money to obtain a mortgage loan.

The latest data eloquently shows the moment of prosperity that the Spanish property market is experiencing. In the third quarter of the year, free housing rose by 6% year on year, to 1,921 euros per square meter, the highest level since the beginning of 2009, according to data published this Thursday by the Ministry of Housing and Urban Agenda. . Price growth is accelerating from 4.3% in the first quarter of the year and 5.7% in the second. This growth also coincides with an increase in the number of sales transactions. That is, more acquisitions from buyers who are willing to pay more and more. In September, home sales exceeded 61,000 transactions, up 41.5% from the same month the previous year and the highest since 2007, according to data published by INE. Transactions on new apartments, the most expensive, are already at their highest level in 11 years.

Already in May, the real estate portal Idealista collected data showing that housing prices exceeded the peak of the 2007 bubble – 2,120 euros per square meter. In October this price is already 2209 euros, and although this level includes the starting offers with which the houses are advertised and not their final selling price, it is a clear thermometer of the current situation and the upward trend of the market. . “We are already seeing cheaper financing energize an important pool of demand, resulting in a record number of transactions in September, indicating to us that prices are likely to continue to rise in 2025. with a special focus on areas where new buildings do not appear on the market,” the real estate portal explains. And they remember that 2024 will be marked by a key housing problem – lack of supply.

“We forecast the upward trend in house prices to continue into 2025, with nominal growth expected to be around 4%, clearly above inflation,” says Judith Montoriol, economist at CaixaBank Research. The rise, which he admits, could well be large: “the expansive property market situation and the good performance of the Spanish economy mean that the risks of faster-than-expected house price growth in our central scenario are not insignificant.”

Felix Lores, an economist at BBVA Research, agrees that the main driver of price growth – demand exceeding supply – will continue and even intensify next year. Since 2021, the number of newly built new homes has been lower than the number of homes built, according to research service BBVA. And given the latest operating data, the firm is adjusting upward its price growth forecast for 2024 and 2025 to around 6%. “We know that the number of houses built two years ago is about 110,000, and these will be the houses that will be built in 2025. At the same time, about 300,000 houses can be built within a year,” he explains. In short, the supply of new housing is very far from new demand. Lores also points to the additional factor of lower interest rates that will encourage access to mortgages for first-time homeowners. There will be more expensive homes, but slightly cheaper loans, which could drive demand towards home purchases in the face of sky-high rental prices. “There will be those who will be more active in looking for housing at lower interest rates,” the expert adds. “We expect home prices to pick up after the stabilization recorded since late 2022 and rise moderately above inflation, given limited supply tight in the short term,” adds Cristina Arias, director of research at Tinsa by Accumin.

The Fitch rating agency predicts that housing prices in Spain will rise by 4-6% in the next two years. They justify their assessment by increased consumer demand, which will bring more attractive financing conditions, a persistent shortage of supply and a stable labor market. And they remember that the INE consumer price index for new homes was already 40% higher than the peak of the 2007 bubble in June. In contrast, this CPI for existing homes is still 10% lower, and this is an understandable contrast. “Due to the very limited supply of new housing in recent years, higher construction costs and labor shortages. In addition, housing demand is shifting towards higher quality housing.” The housing market in Spain is now moving smoothly, with indicators that harken back to the property bubble at the beginning of the century, albeit with nuances. The estimated value in nominal terms is still 8.6% below the maximum recorded in the first quarter of 2008. And in real terms, taking into account the impact of inflation, the estimated cost of free housing is 33% lower than the maximum, says CaixaBank Research. .

Housing shortage

The Bank of Spain estimates that the provinces of Madrid and Barcelona account for about a third of the total accumulated housing deficit, calculated for the period 2022-2025. And if we add to these areas the provinces of Valencia, Alicante and Malaga, then these five provinces will account for more than 50% of the total deficit. These are the areas where the most homes are being built and therefore home sales prices will increase the most. According to Idealista, the increase in purchasing prices in the city of Madrid in October amounted to 18.8%, to 4,830 euros per square meter; 10.8% in Barcelona up to 4597 euros and 19.6% in the capital Malaga up to 3161 euros.

CaixaBank Research notes that the high prices that have already been achieved in certain locations mean that attempts to gain access to housing could be a factor that redirects some of the demand towards nearby but more affordable locations, which in turn will lead to higher prices in this area. “This oil slick phenomenon has already begun to be observed and it is very likely that it will spread in 2025,” explains Judith Montoriol. In the third quarter of this year, according to the Ministry of Housing, only five provincial capitals showed year-on-year price declines: Zamora (-5.6%), Albacete (-2.2%), Almeria (-1.7%). %), Melilla (-1.3%) and Palencia (-0.3%).

What hope remains that housing prices can bring about a truce? As the Bank of Spain noted in a recent report, “the scale of the problem diagnosed makes it difficult to see that individual short-term actions can be of sufficient scale to significantly reduce the current difficulties in accessing housing.” In fact, property development typically takes about two years from start to handing over the keys. Experts agree that the solution lies in stimulating the supply of housing, especially affordable housing. And they question the effectiveness of measures aimed at stimulating demand, such as government guarantees for mortgage loans or tax breaks for home purchases. “Demand-side assistance typically impacts prices,” they say at BBVA Research.