Three effects of the ECB rate cut on the Spanish housing market

He European Central Bank cut interest rates this Thursday 25 basis points, before 4.25%. This is the first cut since March 2016 and a turning point in fiscal policy since increases began in July 2022 to combatg inflation.

The decision of the body headed Christine Lagarde It affects all areas of the economy and finance as it lowers the price of money, but has a particular impact on markets such as the housing market.

The most direct effect is improved financing conditions. He 12-month Euribor rateThe benchmark index for most mortgages in Spain has already taken this fall into account and closed May at 3.679% (compared to 3.862% a year earlier). For this reason, those who checked their loans this month, as well as in April, have already noticed a slight decrease in their payments.

Juan Villen, CEO of Mortgage at Idealistaexplains that “it will be interesting to see how it will develop over the rest of the yearBut he admits that “it is very difficult to make a forecast about the evolution of rates, because the ECB’s message is clear: inflation remains, wages have increased.” quite a bit, the employment rate is high and there is no decline; All this, and the fact that the ECB has already said it doesn’t want to rush, could well mean that the next move lower will take longer than expected.

More mortgages and in better conditions

Despite this, Willen assures that “banks are already very aggressive, especially in offering fixed and mixed interest rates, which are clearly lower than Euribor.” That is, citizens are already seeing more attractive mortgages than last year, and this may stimulate purchases.

Gonzalo Bernardos,Professor of Economics and Director of the Master’s Degree in Real Estate at the University of Barcelonabelieves that “this rate cut is Mortgage War Start Signal which will intensify in the coming months.”

In this sense, Christina Arias, Director of Tinsa Research Servicesexplains that “the demand for credit will increase as it becomes more available and, on the other hand, loan issuance will be expanded having entered the expansionary phase of the economic cycle and feeling lower risks of non-payment“.

In April mortgage loans they raised 37.8% YoYbefore 30 147According to notaries.

Hidden demand returns to the market

Maria Matos, Research Director at Fotocasa, indicates that “we know that there is 21% of buyers who are ready return to the market as soon as rates fall“.

The return of this demand from the middle class, who need financing for a purchase, will continue to face the problem of not having enough savings even to pay the down payment (at least 20% of the total amount of the property). Experts agree that all eyes will be on the ICO guarantees announced by the government but which have yet to be implemented.

Moreover, Matos assures that better conditions will also “further encourage small investor and large investora profile that has grown over the last two years.”

For now Expectations of lower rates are already boosting demand. So they signed 61,683 sales housing in Spain in April, which represents an increase 25.2% compared with a year earlier, according to the latest data released by notaries.

Low supply and rising prices

The consensus is complete: the main housing problem in Spain is large imbalance between supply and demand. He 78% citizens interacting in the market want to buy, not 16% what he sells, according to Fotocasa. This situation puts pressure on housing prices and pushes them up.

“It is logical to assume that if the market receives more demand and continues to have the same supply, prices will tend to rise. If at this time we discover increases by about 7%it’s quite likely that this price increase persists or even intensifies in the coming months. Above all, in regions where demand pressure is higher, such as major capitals and coastal areas, which have greater attractiveness and act as attraction poles for migratory movements and foreign buyers,” defends Matos.

Arias also believes that “in areas of greatest concentration of demandsuch as employment centers and tourist spots, housing prices will continue to tighten until the current supply shortage is resolved.”

In the first quarter housing prices has already accelerated its ascent to 6.3%with that of New construction shot over 10%published this week National Institute of Statistics. According to Bernardos, “it’s just prologue boom what will happen in the second semester and in 2025″. This Economist Predicts Prices Will Rise 6% on average this year and eleven% next, but assures that if new apartments appear, the growth 13% And fifteen%.

Other research services are much more cautious. For example, Bankinteralthough he has just revised his forecasts upward, he points to an increase 3% for this exercise and 2% for the next one.

What seems clear is that prices will rise, but the rate of rise will be entirely linked to the pace of rate de-escalation that the ECB will follow.