The price of housing rose 4.6% year-on-year in June despite the collapse in mortgages and the drop in sales
House prices are refusing to fall, despite the fact that the market is cooling off rapidly due to the strong effect of the interest rate hikes from the European Central Bank (ECB). The latest analyst to point in this direction is the Tinsa appraisal company, which prepares an index every month that reflects the evolution of prices in different segments of the real estate market.
Thus, the price of housing in Spain was still 4.6% higher in June than in the same month of 2022, although the growth rate moderated slightly from the 4.8% registered the previous month.. New and existing home prices have been rising steadily year-on-year since 2021. However, in the last eight months the pace of price increases has moderated considerably.
This is perceived with great clarity in the provincial capitals and large cities, where the rise in prices amounted to 4.1% last month, far from the 8.5% registered in November, when this market segment reached its hottest point.. By contrast, prices in metropolitan areas are proving more resilient. In June, this real estate sector registered prices 6.6% higher than those of 2022, two percentage points above the general average.
Along the same lines is the real estate segment most closely linked to international tourism.. Both on the Mediterranean coast and on the islands, the market has even registered a small acceleration in recent months. In the Mediterranean, house prices remained 4.4% higher in June in year-on-year terms, after falling back to 2.7% in March. In the case of the Balearic and Canary Islands, the price increases are at their highest levels for the whole year. Housing on the islands cost 5.8% more in June than in the same month of 2022.
The price of housing stands, in this way, at maximums not seen since July 2011, when the market was in free fall after the bursting of the real estate bubble. However, it is still 20% of the all-time highs that were reached in 2007. In provincial capitals and large cities, current prices are unprecedented since 2010.
From Tinsa, they point out that despite the fact that inflation and the ECB rate hikes have contributed to moderating prices, the resistance of employment has maintained the confidence and solvency of households. “In this context, residential demand moderates without collapsing and the average price of housing maintains its tendency towards stabilization, slowing down little by little,” says Cristina Arias, director of Tinsa's Research Service.
Sales and mortgages plummet
Up to a certain point, the resistance to lowering that housing prices are showing is surprising if one takes into account that fewer and fewer sales are closed and fewer mortgages are granted. The latest data available from notarial statistics, corresponding to the month of May, indicate that sales fell by 11.4% year-on-year, while the number of mortgages granted plummeted 24% in year-on-year terms.
With these figures it may seem paradoxical that prices continue to rise. However, if we look at the profile of the home buyer in Spain, the pieces fit better. According to the Bank of Spain, the average household that purchases a home in Spain is of high income, with members between the ages of 30 and 49, higher education, and previous assets from a certain entity.. This profile usually needs smaller mortgages and can sometimes afford to buy without a loan.
All in all, the effect of rate hikes will end up dragging prices down, although the falls will be modest. The Bank of Spain estimates that when the increases in official interest rates have been fully transferred to mortgages (so far only half of the impact has been completed), house prices will fall by a little more than 6% in two years. As a starting point, in the two years after the bursting of the bubble, the prices of housing for sale fell by 11%, although the collapse reached 59% if the minimum for housing reached in 2014 is taken as a reference.