Consultants for Business Insider España predict the coronavirus’s continued influence on the 2022 real estate market. This primarily manifests as a persistent preference for homes with ample open areas, patios, or gardens among prospective buyers.
José María Alfaro, the National Federation of Real Estate Associations (FAI)’s general coordinator, terms this a “pandemic effect,” anticipating its continuation into the new year.
The presence of a balcony or terrace, he notes, was previously inconsequential; however, it’s now highly valued. This enhancement even extends to single-family dwellings.
Javier Fernández-Pacheco, a Finance Professor at EAE Business School, offers further insight into this shift in preferences: Remote work has underscored the importance of home comfort. This explains the increased interest in suburban living and the emphasis placed on outdoor space and larger homes suitable for work from home. He believes this 2021 trend will solidify.
Modest Price Increases
The pandemic’s trajectory and corporate work arrangements will directly impact pricing, as noted by José Manuel Fernández, UCI’s (Union of Real Estate Credits) deputy director general, in an Idealista publication.
He suggests that a return-to-office mandate, hybrid models, or continued remote work will significantly influence housing costs.
He illustrates: “The surge in prices in areas bordering major Spanish cities, like the Sierra de Madrid, in 2020 and early 2021, stemmed from high demand. This could reverse if in-office work resumes, potentially causing price hikes in major urban centers.”
Alfaro highlights a two-tiered Spanish real estate market: dynamic cities experiencing population and employment growth, and others facing population decline, higher unemployment, and an aging population. These areas exhibit different growth patterns; slow growth during booms and minimal price drops during downturns.
The FAI coordinator explains that, prior to the pandemic, the real estate sector was stabilizing, following a sustained upward trend from 2015 to 2019, nearing 2007 peak prices.
The coronavirus, however, altered the landscape. Alfaro describes the current state as “a real estate de-escalation phase: some cities show a 50% increase in properties available compared to a decade ago.”
He attributes this to a mismatch between market demand and supply following the significant downturn of 2015. “Replacement lagged: two properties were sold for every one that re-entered the market.”
He forecasts a 2022 market slowdown with continued price increases and persistently low interest rates.
Idealista also anticipates a potential (and slight) increase in
Experts in the property sector concur that, should the current robust market persist, a modest price escalation is likely.
According to a senior official at UCI, after reviewing data from the IX Real Estate Market Index, market specialists, those with a keen understanding of current trends, foresee a slight price increase (under 10%) between late 2021 and early 2022.
Is a Housing Market Boom Imminent?
National statistics reveal that Spain’s apartment sales already surpass those seen during the height of the previous real estate boom: September 2021 recorded 53,410 transactions, compared to 45,453 in September 2008.
However, unlike the previous boom, current supply is limited. This significant supply-demand imbalance could fuel escalating prices. A prominent real estate professor at the University of Barcelona notes that, were developers constructing 300,000 homes annually, a market surge would be less probable. The current rate, he adds, is insufficient to meet current demand.
The central bank has indeed acknowledged potential risks. While lacking definitive proof of overheating, they acknowledge that housing costs are already above pre-pandemic (2019) levels, slightly exceeding equilibrium values.
However, any potential market boom would differ from the previous one. Financial risk is currently low, and the absence of a credit bubble limits the potential impact of a hypothetical market surge.
Low Borrowing Costs
Low interest rates are another key factor: a significant portion (60%) of current mortgages are fixed-rate, according to a financial industry spokesperson, “financed at rates of 1.20%–1.30% over 15–25 years. This provides substantial protection. Any fluctuations won’t trigger the dramatic payment increases witnessed before 2008, where some households faced up to a 60% increase.”
An economics professor expresses reservations, emphasizing the impact of inflation. He suggests that if inflation stabilizes, interest rates may remain unchanged. Conversely, if inflation persists and the European Central Bank raises rates, the Euribor will be affected, resulting in downward pressure on property values.
Favorable Conditions for Purchasing in 2022?
Predicting the future in the current climate of pandemic-related uncertainty is challenging. One market analysis firm projects favorable short- and medium-term prospects for the real estate sector, citing economic improvement, low borrowing costs, and increased savings, all suggesting a rise in demand and prices.
Industry analysts note that mortgage applications are currently exceptionally favorable due to lenders offering significantly cheaper options.
A financial advisor offers four key considerations for prospective homebuyers.
For investors, careful financial calculations are vital, notes a financial expert: “Profitability depends on the selling price minus the purchase price, plus accumulated rental income. However, a future interest rate increase would affect rental income.”
The disparity between asking price and the final sale amount is quite considerable.
Adding to the complexities, we must contemplate the potential impact on the broader economy. The expert concludes, “The level of uncertainty is staggering; rarely have I encountered such a profusion of hypothetical scenarios.”
José Manuel Fernández forecasts a surge in investment, particularly in property refurbishment: “The influx of European funding will channel considerable resources into public-sector home renovations, prioritizing energy efficiency, thus stimulating both purchases and renovations. Therefore, I anticipate a more substantial homeowner investment in upgrading the quality and energy efficiency of their properties compared to previous years. “
Spain’s Housing Market: A Post-Pandemic Balancing Act
Spain’s real estate market is at a fascinating crossroads. While recent sales figures surpass even the pre-2008 boom, the underlying dynamics are markedly different, suggesting a far less precarious situation than the one that preceded the last crisis. This piece analyzes the conflicting signals emanating from the Spanish property sector, gleaned from a recent Business Insider España report.
The pandemic’s legacy is undeniable. The shift towards remote work, highlighted by experts like Javier Fernández-Pacheco of EAE Business School, has fueled a fervent demand for homes with ample outdoor space. Balconies and gardens, once mere luxuries, are now essential features, driving up prices in suburban areas and impacting even the single-family home market. This “pandemic effect,” as FAI’s José María Alfaro terms it, is expected to persist into 2022.
However, the picture isn’t uniformly rosy. While sales are strong, surpassing even 2008 levels, the market is characterized by a significant supply shortage. This imbalance, as noted by a University of Barcelona professor, is the key factor potentially driving prices upward. The current construction rate is far below what’s needed to meet demand, potentially leading to a price escalation, though not necessarily a full-blown boom. The Bank of Spain, while cautious, acknowledges that housing prices are already above pre-pandemic levels.
This potential price surge, however, isn’t likely to mirror the volatility of the 2008 crisis. Several key factors mitigate the risks:
Low Interest Rates: The prevalence of fixed-rate mortgages at historically low rates (1.20%–1.30%) safeguards borrowers against dramatic interest rate hikes, a major trigger of the 2008 crisis.
Limited Credit Bubble: Unlike the previous boom, the current market shows significantly lower financial risk, minimizing the potential consequences of a price correction.
Regional Disparities: The market is far from homogenous. Dynamic urban centers are experiencing growth, while others struggle with declining populations and unemployment. This regional divergence adds complexity to any broad market predictions.
The Business Insider España* report points to a potential “de-escalation phase,” with some cities showing a 50% increase in available properties compared to a decade ago. This reflects a post-2015 market correction, where supply lagged significantly behind demand. Combining this with ongoing low interest rates, experts predict modest price increases (under 10%) in the coming months. But this should be understood as a measured ascent, rather than the explosive growth seen before the 2008 crash.
Conclusion: While the Spanish housing market displays impressive sales figures and a potent demand fueled by post-pandemic lifestyle shifts, the risk of a full-blown boom appears mitigated by several key factors. The current situation presents a more balanced, though potentially inflationary, market trajectory characterized by regional differences and a low-risk, albeit potentially rapidly rising, price environment. The coming year will be crucial in determining whether these cautious predictions hold true, or if underlying pressures drive a more dramatic shift.
