Spanish Property Market Faces Slowdown as House Price Growth Halts
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House price growth comes to a halt
Due to declining demand in the Spanish property market, there has been a marked slowdown in price growth. With a reduced number of potential buyers, sellers face fiercer competition, resulting in reduced pricing power. While house price growth peaked at 8.5% year-on-year in the first quarter of 2022, according to Eurostat, it fell to 3.5% in the first quarter of this year. Other price trackers such as TINSA also show a clear downward movement.
Spanish house prices, in % YoY
Rising interest rates pose challenge to housing market affordability
Over the past year, the sharp increase in interest rates has put significant pressure on the buying power of potential homebuyers, making it challenging for prospective buyers to buy a home or to qualify for a mortgage loan at current price levels. According to calculations by the National Bank of Spain, affordability has dropped significantly over the past year. The bank regularly assesses the percentage of income an average household would have to spend if they bought a house with an 80% loan. These calculations show a remarkable deterioration in property affordability. At the beginning of 2022, households only needed to spend 30% of their income to repay loans, but by the fourth quarter of that year, this percentage had risen to more than 36%.
Although wages are picking up, interest rates rose further in the first half of 2023, which has likely worsened housing affordability. Affordability will continue to be under strong pressure in the second half of the year due to further increases in interest rates.
Housing affordability has significantly worsened over the past year
