The European Central Bank raised its interest rates by 0.50 percentage points on July 21 and the effects were immediate. The Euribor, the quintessential indicator of mortgage interest, had been skyrocketing for some time. Specifically, since February, when the possibility that the ECB would increase its rates to contain inflation began to be considered. But the official announcement meant that, just one day later, the indicator reached 1.2%. And the experts agree that it will continue to rise in the coming months, which will make mortgages more expensive and reduce the demand for flats and houses. But what will happen to the price of housing?
According to the specialists of the financial and real estate comparator HelpMyCash.com, the pronounced growth that the value of the brick had during the last year will begin to slow down in the short term. However, they point out that several factors must be taken into account to make predictions, such as the current imbalance between supply and demand, inflation —which is intended to be contained with the rate hike—, the scarcity of new construction and the type of real estate asset.
In an inflationary context, what is expected is that the price of housing will increase, as will the rest of the products, goods and services. The latest data from the INE reveal a year-on-year increase of 10.2% in the consumer price index (CPI) in June, while the appraiser Tinsa reported an increase of 8.7% in house prices during the same period. According to Paula Eseiza, an expert at the comparator, real estate continues to be a refuge value par excellence, given that the increase in its value tends to accompany the rate of inflation. But this could be affected by the rise in rates, the reduction in demand and the hypothetical recession that is coming.
“Normally, real estate assets tend to appreciate in high inflation environments. But we believe that price growth will not be as high as in the past, given the potential for a real decline as inflation and possible recession hit families over the next six to twelve months," explains Andrea Baielli, Chief Financial Officer at iBuyer Tiko, in an interview for HelpMyCash.
During the confinement caused by covid, there was an excess of savings that allowed many families to access a mortgage loan. For this reason, the demand soared and monopolized a large part of the available housing supply. Since then, there has been a pronounced imbalance between those who want to sell and those who want to buy, the latter being the majority. That is why the price of housing has skyrocketed in the last year, according to the experts at HelpMyCash. Added to this was the rise in construction costs caused by the war in Ukraine and the consequent stoppage of many promotions, which increased the shortage of supply. But the reduction in demand that is expected for the coming months would come to correct, at least in part, this situation.
Pedro Ruiz-Dana, founding partner of the Barcelona real estate company Cefersa, points out in an interview for HelpMyCash that “for the 2022-2023 period, we believe that house prices should be adjusted to their realistic value. That does not mean seeing strong price drops, but going to the market at the right selling price. The existing demand is not willing to pay premiums”.
Experts also point out that, despite the contraction that may occur in the price of brick, the impact will not be the same on the different real estate assets.
"We believe that there may be a slight contraction in marketing prices and a correction with respect to the distance that currently exists in the market between buyer and seller," says David Rosel, commercial director in Barcelona of the real estate company Berkshire Hathaway Home Services in a note from HelpMyCash. And he adds that, in the coming months, there could be a slowdown in the real estate activity of properties that are not premium. "It is evident that not all places have the same demand and, consequently, it will be perceived differently depending on the territory," he adds.
Experts agree that, at the moment, no significant drops in the value of housing are expected, but a reduction in demand and a slowdown in price growth are expected. For this reason, faced with the question of whether to sell now or wait, the comparator's specialists advise selling now, given that there are still attractive mortgages and demand continues to be active.
