Since inflation began to rise in Spain and across Europe, many news headlines and expert opinions warned that demand for housing would slow down and that the price would correct its upward trajectory. However, the pressure of demand on supply grew in 2022 and reached higher levels than those reached in the previous two years, according to idealista/data. Without going any further, in December 2022 it increased by 0.11 points compared to December 2021. And Madrid is the winning province, the one with the most demand pressure for housing for sale. The price of property in Spain has also continued to rise: in January prices grew by 5.4% compared to a year ago.
So what is going on? Who is buying houses in Spain in the midst of rising interest rates? According to the latest survey carried out by idealista/data on more than 4,000 people, 70% of those who want to buy a home already own at least one house. This means that many people buy a house for replacement purposes, i.e. they already own a house, but are looking for a different one. Specifically, of the people surveyed, 19% are looking for another home with improved characteristics; 17.4% are buying for investment; 14.7% are looking for a second home; 14.3% want a larger home, and 6.2% want a smaller one.
Jesús Gil Marín, CEO of the real estate company Gilmar, maintains that with investment in housing it is still possible to obtain returns that are above the price of money and this may be motivating the market to remain active. "In addition, foreign investment is helping to stabilise prices, especially citizens from Latin America - given the political uncertainty in certain countries - who are opting for Spain for obvious reasons such as cultural, linguistic and even gastronomic identity," he adds.
In addition, home seekers are solvent. Almost 50% of those surveyed do not need a mortgage, or if they do, it is for less than 50% of the value of the property. In other words, there is not so much dependence on a financial institution. 32.2% need a mortgage between 50% and 80%, while 13.9% need a loan of more than 80%. Only 5.6% need a 100% mortgage.
Economist Miguel Córdoba points out that people who depend on a mortgage will be affected by the rise in the cost of loans. However, this expert stresses that the average amount of mortgages is currently around 179,000 euros, which contrasts with 258,000 euros in 2007, "without taking into account the 29.25% inflation that has occurred in these fifteen years, which would mean that the average amount in real terms of a mortgage is currently 54% lower than it was before the property bubble burst".
Finally, he points out that there has been a particular effect in relation to the rise in interest rates (currently at 3%), as rising inflation and the ECB's change in policy has meant that many who were thinking of buying a home have accelerated their plans to get it cheaper before the interest rate rise materialised. It is likely that many of these transactions have been taken out at fixed or mixed rates. "This excess of mortgages should be noticed in the coming months with a decrease in those contracted in 2023, and it will also be a little bit the same to do it at a fixed or variable rate, since I do not think that interest rates will exceed 5% and taking out a mortgage at 3.5% or 4% fixed or variable will make little difference", says Miguel Cordoba.
The idealista/data survey also highlights that those looking for housing have a fixed income, specifically, 91% have a fixed income, either because they have a fixed contract, are pensioners or are self-employed.
There is more demand than supply for housing in Spain
The current housing market is tense: there are more people wanting to buy than there is supply. Although in some areas of Spain there is talk of falling demand and this is true, it is partly due to the fact that supply is lower and sales are falling, as Luis Corral, CEO of Foro Consultores, points out. The latest figures from idealista show that the stock of homes for sale published as a percentage of the total existing residential stock stood at 4.81% in December 2022.
In terms of supply reduction, during the end of 2022 it fell by 7% year-on-year and most provincial capitals now have fewer homes for sale than they did a year ago. The largest reduction has occurred in Valencia, where it reaches 27%, and reaches 25% in Alicante. It is followed by falls in Cuenca (-24%), Ávila (-22%), Santander (-20%), Pontevedra (-18%), Melilla (-17%) and Segovia (-17%).
Furthermore, the most sought-after type of property is pre-owned property in good condition (73.5% of those surveyed are looking for pre-owned property in good condition), followed by pre-owned property to be refurbished and lastly, new constructions.
What about new constructions in Spain? Luis Corral states that the lack of new homes in Spain is being transferred to pre-owned housing. This imbalance is not only affecting the buying and selling market, but also the rental market, where the number of people interested in renting is increasing. Some, like young people, are forced to rent. "In addition, many projects that would normally be destined for development are now being rented out, so the lack of supply of new construction for sale is becoming even more acute. Faced with this lack of supply, there is a psychosis of fear of being left without a home. And this imbalance leads to price maintenance and even occasional rises," adds Corral.
Why is there no new housing in Spain? The lack of projects on the market is due to the price of land, construction costs and financing costs, which are very high. According to Luis Corral, at the moment, the developer loan is above 5.5% and the costs linked to building in November were 8.42% higher than in the same month the previous year and since May 2020 they have risen by more than 20%, according to data published by the Ministry of Transport, Mobility and Urban Agenda (MITMA).
What type of housing is in demand by price range
The idealista/data survey shows that the most sought-after property on the portal is that worth between 100,000 and 200,000 euros, followed by those advertised for less than 100,000 euros and, in third position, those priced between 200,001 and 300,000 euros.
Jesús Gil points out that "there is a price range in which a certain 'standstill' is being noticed. If we are talking about homes up to 200,000 euros (approximately), we are referring to people with very low incomes, who are more affected by the rise in interest rates, making it more difficult for them to access a home through a mortgage loan. But from 200,000 - 300,000 euros upwards, both Spaniards and foreigners continue to trust in housing as a savings and investment instrument, in addition to replacement buyers and the buyer/investor profile with high purchasing power, who have other budgets and are committed to the security offered by prime areas, which will always be in high demand".
Methodology
The data on the pressure of demand on supply is based on the number of 'leads' (contacts by email and counter-offers) received per listing on idealista. On the one hand, the leads show the demand for housing by users. On the other hand, the number of listings measures the supply of housing available on the portal. In this way, the indicator synthesises the pressure of demand on supply in each area of Spain and for each market segment (sale and rental), and is used to measure situations of heating or cooling of the market when relative demand is high or low, respectively. This data is analysed by idealista/data.