Spanish Housing Market Trends: Defying Eurozone norms in 2024

Spanish housing market trends: How Spain’s housing market is outpacing the Eurozone

While many Eurozone countries are seeing their real estate markets cool off, the Spanish housing market is thriving. Despite rising interest rates that are pressuring property markets across Europe, Spain’s real estate sector continues to shine with robust growth.

Resilient growth in the face of rising interest rates

In September 2024, Spanish house prices surged by 2.1% compared to the previous quarter, according to Eurostat. This growth significantly surpasses the 0.1% increase seen across the broader Eurozone. Countries like Germany, France, and the Netherlands have faced declines in house prices recently. Over the past year, Spanish property values jumped by 3.7%, while the Eurozone average dropped by 1.7%. Even with higher mortgage rates, Spain’s property prices are on the rise, making it a standout in the Eurozone landscape.

Strong demand fuels the Spanish real estate boom

Despite the challenge of higher interest rates, Spain’s housing market remains remarkably resilient. Data from the Spanish National Statistics Institute (INE) shows a decrease of 18.6% in mortgage loans granted in July 2024 compared to the same month last year. Property transactions also fell by 10.1%. However, Spain’s downturn is less severe than in many other countries, thanks to several key factors:

• Growing households: Spanish household numbers are increasing, partly due to immigration.
• Economic strength: Spain’s economy is projected to grow by 2.5% in 2024, far outpacing the Eurozone’s expected 0.5% growth.
• Improved purchasing power: With wages rising and inflation low, Spanish households are seeing positive real wage growth, boosting their ability to buy property.
• Pandemic savings: Many families who saved money during the pandemic are now investing in real estate.

Resurgence of foreign interest

Foreign interest in Spanish properties, which declined during the pandemic due to travel restrictions, has rebounded strongly. This is especially evident in popular tourist regions like the Balearic and Canary Islands and the Mediterranean coast, where property price increases surpass the national average. The revival of tourism has led many property owners to hold onto their assets for short-term rentals, tightening supply further.

Supply shortages drive up prices

A key factor in the rising property prices is the mismatch between household growth and housing supply. The construction sector, already slow due to pandemic restrictions, has been further hampered by high interest rates and rising material costs. With no immediate relief in sight from the European Central Bank (ECB) or in building costs, supply shortages are likely to persist.

A more stable market compared to the Eurozone

Spanish house prices rose more moderately during the pandemic compared to other Eurozone countries, suggesting a less overheated market. The ECB’s assessments show that Spain’s property market is less overvalued than many major Eurozone economies. In the first quarter of 2024, the ECB estimated Spain’s property market overvaluation at 10.3%, lower than the Eurozone average of 12.8%. This is also significantly below the Netherlands’ 19.8% and Germany’s 14.8%.

Forecast for 2024: A slight slowdown

While the Spanish housing market remains strong, several factors may slow its momentum. High mortgage rates are expected to continue, potentially limiting real estate purchasing power. Economic growth is forecasted to slow from 2.5% in 2024 to 1.4% in 2025. Consequently, house prices are anticipated to rise by an average of 3% in 2024 and 2% in 2025. After adjusting for inflation, this suggests only a minor correction in real prices.

In summary, the Spanish housing market continues to defy Eurozone trends with its impressive performance in 2024. As Spain navigates these challenges, its real estate sector remains a compelling example of resilience and growth amidst broader economic uncertainties.

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