With the turn of the year, requests for forecasts on the residential market multiply from friends and family as well as journalists. The former want to know if it is time to buy or change their home, and the latter prepare articles summarizing expert opinions on the evolution of the real estate market for the following year. As those who have been following this column for a long time already know, I am not a fan of making predictions, much less in the current context of very high geopolitical uncertainty. However, to prepare this article I had the temerity to go and see what I said last year, around this time, about the evolution of the sector in 2023. I must say that the result has encouraged me to write this article. At the end of 2022 the question was how the number of mortgages and sales could continue to increase if rates were rising. My comment was that the transfer of Euribor to mortgages was occurring with some delay but that in 2023 we would see the full impact with sharp falls in sales and mortgages. Furthermore, I think I will also be right in the range of increases in housing prices, an inexorable question asked by experts. The evolution of the rental price was easier: “The only way is up” like the famous song from the eighties.
In general, the economic forecasts for 2023 have not been very accurate. Economies were expected to slow rapidly due to the impact of interest rates, the loss of purchasing power caused by inflation and geopolitical problems. However, the world economy, and specifically the most developed ones, has performed much better than expected. At the end of 2022, the forecast was that the US economy would enter a recession, while today it is very likely that growth has been above the long-term trend and stands at 3%. Inflation was also expected to be very persistent, after the previous phase thought that inflation would be transitory. And it goes and all of a sudden inflation starts to slow down rapidly. Finally, central banks stated that rates would be high for quite some time. However, the markets are winning, as they bet that intervention rates would fall as early as 2024. With this forecast, all interest rates are falling sharply. For example, the Euribor has already been falling for three months. On September 29 it reached 4.23%, while at the end of December it is at 3.55%. The Spanish 10-year bond has fallen from 4.07% on October 3 to 2.88% at the end of December. The yield curve remains inverted (short-term assets earn more than long-term assets), which in the past was an unequivocal sign of recession, but today it seems to be another economic regularity that has gone down in history.
The housing market has also maintained surprising resilience during 2023, with a recovery in prices in some of the countries that showed clear corrections at the end of 2022 and beginning of 2023, such as Australia or the United States. In the EU, let us remember that prices grew by 10.4% in the first quarter of 2022. In Germany they grew by 12.8%. In the Netherlands, at 19.3%. In Sweden, 11.3%, and in Luxembourg, 17.3%. In one year there has been a substantial adjustment, and in the second half of 2023, housing prices in the EU fell by 1.1% and more intensely in those countries where they had grown the most in the previous phase of expansion (Germany , -9.9%; Sweden, -6.8%; the Netherlands, -4.3%, and Luxembourg, -6.4%). In any case, the falls are very far from the forecasts of the European Central Bank, which estimated that for every point that interest rates rose, housing prices fell by 5%. The Spanish case is special, since, unlike most EU countries, there was no large increase in housing prices during the pandemic and the following years. Therefore, the adjustment had to be slower and more moderate, as has indeed happened. In the first quarter of 2022, prices grew at 8.5% and slowed down to 3.5% in the first quarter of 2023. From that moment on, there has been an acceleration that has led to an interannual growth of 4.5%. 5% in the third quarter of 2023 despite observing a substantial drop in sales and mortgage contracts as a result of the increase in interest rates.
In 2024, if the economy and employment maintain their dynamism in Spain, there will be a certain improvement in sales and mortgages as a result of the end of the base effect of 2022 (which was a year in which sales increased greatly due to stagnation of the pandemic and the attempt to take advantage of the last blows of low rates) and the reduction in interest rates, which in the last weeks of the year is already being transferred to mortgage offers. This means that financial institutions will try to maintain results, given the fall in rates, with an increase in mortgage production. The evolution of housing prices is more uncertain, since the recent acceleration will not be maintained with the slowdown of the economy, but the imbalance between supply (about 105,000 visas) and demand (formation of 210,000 families) will make a significant adjustment of housing prices difficult. prices.
For its part, the price of rent continues to rise. In the EU, year-on-year growth in the second quarter of 2023 was 3%. In Spain, the increase remains strong and could reach 5% by the end of 2023. It does not seem that the pressure on rental prices in Spain will reduce in 2024, given the evident lack of supply. The slowdown in the economy and, surely, in employment could slow down the growth of rental prices by between 2%-3%, but it will be difficult, if there is not a much greater slowdown than expected, for rents to fall during 2024 .
My best wishes for 2024 and that the Three Wise Men bring us less political polarization and populism to face the problem of access to housing.
