What to expect from house prices in Spain this summer 2023

Is it a good time to buy property in Spain in 2023? Is summer a good time to buy a home? The majority of experts consulted say that house prices in Spain will remain stable over the coming months, although there is a relevant demographic factor for the real estate market, a large cohort of the population that will replace their usual home with a residential one in coastal areas, and this is a factor that puts upward pressure on prices. Taking a look at the most recent house price forecasts in Spain, it is in areas such as the Mediterranean coast and the islands that we can already see the greatest upward pressure on prices, with a tendency to increase. This is what to expect from house prices in Spain this summer 2023.

Are property prices dropping in Spain?

House prices in Spain, represented through the repeat sales methodology (the Repeated Sales Housing Price Index), have registered a quarterly growth of 1.29%, according to data from the first quarter of the year provided by the Association of Registrars. The year-on-year rate stood at 5.43%. With respect to the nearest lows (2014), a growth of 59.48% has been accumulated, 0.08% below historical highs (2007).

How house prices in Spain in 2023 have evolved so far

According to the National Statistics Office in Spain (INE), during the first quarter of the year, house prices rose again (+0.6% quarter-on-quarter vs. -0.8% the previous month). Carlos Balado, professor at OBS Business School and director of Eurocofín, states that, despite this quarterly advance, in year-on-year terms the growth of housing prices intensifies its moderation to a growth of 3.5 percent compared to 5.5 percent previously.

By type of housing, the annual rate for new housing fell by two tenths of a percentage point to 6%. On the other hand, "the variation of second-hand housing stands at 3%, more than two points below that recorded in the previous quarter".

Meanwhile, Cristina Arias, director of the Tinsa Research Department, points out that Tinsa Research expected a gradual trend towards the stabilisation of residential prices. "As we indicated a year ago, after the outbreak of the war in Ukraine, we estimated that inflationary pressures would become more pronounced and household savings would be eroded, while interest rates would start to rise and access to financing would become more difficult. All this would dampen housing demand, as is indeed happening".

Will house prices in Spain rise this summer?

The same expert tells us that a rule of thumb based on cross-country evidence is that each percentage point increase in real interest rates slows the pace of house price growth by approximately two percentage points, according to the IMF.

Thus, with the effect of rising interest rates on house prices, and given that in Spain rates have risen by three percentage points since July last year and house prices by 8 per cent, "price increases by 2023 can be expected to be around 2 per cent, since, in addition, interest rate increases are reaching the maximum set by the ECB for this year, 3.75 per cent, and therefore, the new increases to be applied would be 0.25 basis points each, i.e. less than one point".

As long as inflation persists, as seems likely to happen this year and, as a consequence, rates continue to rise, Carlos Balado believes that the cost of financing will be more expensive and, for this reason, demand will fall, but this will not really be seen until the last part of the year. A priori, everything indicates that sales will be around 480,000 units, lower than in the last two years, and when sales fall, so do prices.

For Tinsa, residential prices in the area of sales and purchases will continue to stabilise. They believe that in the last two months there have been increases on the Mediterranean coast and islands, while in large cities, metropolitan areas and inland areas, stabilisation is consolidating.

"This may be indicating a boost in second home sales, as well as in sales by foreigners. These buyers have greater purchasing power and are less sensitive to inflation and rising mortgage costs, as they often require less external financing for the purchase of a second home," according to Cristina Arias.

While the OBS Business School professor is of the opinion that there is a relevant demographic factor for the real estate market, a large cohort of the population that will replace their usual home with a residential one in coastal areas, and that is a factor of upward pressure on prices. It is in areas such as the Mediterranean coast and the islands that we can already see the greatest upward pressure on prices, with a tendency to increase.

The areas where it is best to buy at low prices

The national average in Spain in year-on-year terms is 4.8 percent, on the Mediterranean coast it is 4.7 percent, in the capitals and large cities it is 4.3 percent and in the rest of Spain it is 3.3 percent, according to Tinsa data.

However, there is great dispersion within these areas, as Carlos Balado points out. Thus, for example, within the Mediterranean coast, in Castellón the price per square metre is 1,328 euros, and in Murcia 1,465 euros, compared to a maximum of 4,415 euros in Barcelona, 3,966 in Palma de Mallorca or 2,989 in Málaga.

"As for the Canary Islands, prices vary from 2,365 euros in Las Palmas to 1,961 euros per square metre in Santa Cruz de Tenerife". And if it is in the interior of Spain, the differences are notable, ranging from 4,305 euros in Madrid to 1,684 euros in Guadalajara or 1,592 euros in Toledo.