What will 2024 be like for the Spanish real estate market? What about prices and are we facing a crisis?

What will real estate prices in Spain be like in 2024?

Tightening lending conditions also result in an increase in the costs of building new apartments. To this should be added the lack of plots, bureaucracy, an increase in construction costs by approximately 25% and a lack of labor. Taking into account the above, a continuation of the increase in apartment prices in new buildings in 2024 will not be a surprise.

In the case of resale apartments, prices are already showing signs of stabilization, recording a year-on-year increase of 6.2% in November, marking the most moderate increase this year.

Fotocasa Real Estate Index data show that at the beginning of the interest rate increase cycle, apartment prices rose strongly. June 2023 saw the biggest price swings since 2006: a 10.8% year-over-year increase, similar to when the market started to heat up before the 2007 bubble. Ultimately, we will close 2023 with a growth around 5%. 

In the first quarter of 2024, properties prices will continue to increase, although to a more moderate extent. The market will continue to be dynamic and resilient, expectations regarding a recession in the real estate market will not come true, and there will be no crisis in the industry in 2024.

The market needs to create a climate of stability and trust between all parties that constitute it, while promoting and increasing the supply of affordable housing in order to balance market prices and improve the availability of housing for citizens. In 2024, investing in real estate will be one of the safest forms of capital investment available.

Are we facing a slowdown?

A sales slowdown has defined 2023, but it must be placed in the context that the reduction comes as a result of a year-on-year comparison to 2022, which turned out to be a boom year. The latest data indicate that over 550,000 operations will be completed by the end of this year and once again this will be one of the best results since 2008, which is especially important considering the high level of interest rates. 

Ten interest rate increases are behind us, making up the most aggressive cycle in the history of the European Central Bank. For now, the fear of recession is paralyzing escalation, and the tone of this institution's statement indicates that at least until the second half of 2024, a period of stabilization will not begin, which would involve the relaxation of monetary policy. 

In 2024, there will be resistance to rising mortgage prices and the number of registered sales transactions may hover around 450,000 operations, which would mean a return to normality and normal market dynamics. 

The excess purchasing demand after the pandemic is weakening, giving way to a new real estate buyer profile. This is a person with high financial solvency, knowledge and experience in the real estate industry, in many cases it is a foreign buyer. This investor profile is more resistant to European monetary policy because it requires less bank financing and has greater purchasing power.

What changes await the mortgage market in Spain in 2024?

Mortgages are suffering from rising interest rates. Mortgage lending companies will slow down more than sales in 2024, as nearly 40% of buyers are already looking for new ways to finance their property purchases without having to take out a mortgage. This is the highest result since 2017.

We are therefore entering a change in the mortgage lending cycle adapting to a new context in which banks are promoting floating rate loans and, to the detriment of fixed interest rates, varieties such as mixed mortgage loans are emerging.

Euribor, after presenting the highest growth in 15 years exceeding 4%, seems to be hovering below 4.5% in the coming months with a tendency to stabilize. This level of the benchmark index, tightening lending conditions and economic slowdown will discourage people from taking out mortgage loans. 

Read more: What you need to know when applying for a mortgage loan in Spain in 2024

A few words of summary

I agree with the opinions of leading analysts of the local market, who claim that the trends we observed on the real estate market in Spain in 2023 will also continue in 2024. This means that in the coming year we will be dealing with the phenomena we already know:

1. Rising real estate prices.
2. Strong position of foreign investors.
3. Increase in lending costs.

In my opinion, in 2024 we will return to the normal dynamics of the local market, which in recent years was disturbed by the pandemic and the outbreak of the war in Ukraine. This will be the year of investors having greater purchasing power and requiring lower (or no) financing from banks. This will also be a year in which we should not expect a decline in real estate prices; on the contrary, we should take into account a further moderate price increase. This applies especially to the primary market, which is struggling with a lack of employees and a significant increase in the prices of construction materials. There will be another element that we are already facing this year: an insufficient number of ready-to-move, attractive properties in interesting locations and reasonable prices. After experiencing increased sales dynamics in 2021/2022, the secondary market is drained, and the primary market cannot keep up with meeting the current demand for ready-made apartments. This is particularly troublesome in the context of foreign investors who often do not want to wait 2 years to pick up their dream apartment on the Spanish coast. 

[Sources: Fotocasa, Idealista, Bankinter]