A Soft Landing: Spanish Housing Market Outlook and Price Forecast
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An abrupt market crash seems ruled out
All indicators point to a substantial slowdown in the housing market this year. A further rise in interest rates will continue to put pressure on affordability and further dampen demand for mortgages later this year. While a marked slowdown is expected, several factors are also reducing the likelihood of a severe price correction or abrupt market crash.
First, the drop in energy costs reduces uncertainty for households and frees up additional budget that can be spent on monthly mortgage payments. Second, incomes will continue to rise. Nominal wage growth will pick up after the sharp drop in real purchasing power in 2022. In addition, low unemployment ensures steady growth in gross national income. The combination of rising nominal incomes and a tight labour market will provide some support to the demand side of the real estate market.
Finally, despite this current temporary dip, demand will continue to grow structurally in the coming years. Slower supply growth will create scarcity in the market, which will put upward pressure on prices.
Weak price growth in 2023 and 2024
We have updated our forecast for the current year and now assume price growth of 1%, which is an upward revision from our earlier estimate of 0%. This revision is due to the continued house price growth at the beginning of the year, albeit at a slower pace. Our price forecast assumes a slight decline in prices in the second half of this year. For 2024, we have revised our forecast downwards to 0% from our earlier estimate of 1% as we expect the continued rise in interest rates will dampen any recovery in the property market next year.
Overall, this scenario forecasts a soft landing for the Spanish housing market. Although there is a risk of a slight drop in prices in the second half of this year, the overall price correction will remain modest in nominal terms. However, it is important to note that the correction in real terms will be significantly higher due to the impact of high inflation. Inflation-adjusted prices fell slightly last year and we expect further declines of around 2.5% to 3% in 2023 and 2024. Over a three-year period, the cumulative real price adjustment is expected to exceed 6%.
Evolution of Spanish house prices, including ING forecast
