Why will it cost more to buy and sell a flat in 2023?

Between boom and recession.

Thomas Osborne
Thomas Osborne
05 December 2022 Monday 21:40
10 Reads
Why will it cost more to buy and sell a flat in 2023?

Between boom and recession. 2022 will end as a great year for the real estate market for having broken records both in prices and in the number of sales, but it will also be remembered for the start of a cycle change. Runaway inflation and the measures taken by the European Central Bank (ECB) to contain it caused real estate to show signs of cooling off in the second half of the year. In specific data, the price of brick rose just 0.1% during the third quarter; compared to 2.4% in the previous quarter, according to the College of Registrars. Purchases and sales also show signs of slowing down: operations registered in September did not show growth compared to August, according to the INE.

What will happen in 2023 is still uncertain. The specialists of the real estate comparator HelpMyCash.com consider that the evolution of prices and sales will depend on the evolution of interest rates -the ECB will raise them again in December for the fourth time this year- and on the success of this measure in the inflation containment. Still, they anticipate that the number of transactions will most likely fall and that house prices will fall in real terms, that is, they could contract or increase slightly, but not at the rate of inflation. What are the causes of these predictions?

The Euribor —the quintessential indicator of mortgage interest— began the year with a value of -0.477%. Ten months later, its average price reached 2.629% and it is expected to close this year at around 3%. This rebound translates into a notable increase in mortgage costs. And that's not all: the different increases in interest rates carried out by the ECB, which is the cause of the increase in the Euribor, are intended to contain inflation, which is still running rampant and is reducing the saving capacity of families.

“The more expensive mortgages and the erosion of families' pockets caused by inflation mean that fewer Spaniards can access a mortgage loan. In addition, in this context of uncertainty, banks are beginning to toughen the requirements for granting mortgages”, they affirm from HelpMyCash. And they add that, as a consequence, a part of the population can no longer buy a home, so demand is reduced, and those who can tend to make lower purchase offers to offset the interest on the loans. This, a priori, tends to reduce prices. But there are other circumstances that must be taken into account.

Even if the market forces prices down, most Spanish owners prefer to keep the property rather than sell it for less than expected value. For this reason, a notable drop in the number of transactions is expected for 2023 and a moderate contraction in prices. Likewise, HelpMyCash specialists anticipate that the average time to sale will lengthen, unless the owners adapt the prices to the market conditions.

“If a seller has a real intention to sell, it is best to go on the market for an appropriate price. We recommend consulting with at least three professionals to carry out a home valuation”, they explain from HelpMyCash. And they add that if, on the contrary, the owner is willing to wait, "he can test the market by publishing the house at the desired price, but knowing in advance that the sale is very likely to be delayed."

In addition to inflation, the Russian invasion of the Ukraine caused an increase in construction costs that led many developers to slow down and suspend their works. Until now, the market was characterized by excess demand in the face of a scarce supply. And although the increase in mortgage prices tends to reduce the demand for housing, it must be taken into account that the lack of new housing also tends to reduce the supply. This explains why a sharp drop in prices is not expected for 2023.

“We believe that the evolution of the real estate market for next year is still uncertain. Ultimately, this will depend on the decisions that the ECB continues to make and the success or otherwise of its measures in containing inflation”, conclude the experts.