For Britons dreaming about a holiday home in Mallorca, perhaps now might be the time to start seriously considering making the move, or at least an investment in a second home. According to IMG, strong price growth continues, although we are past the peak.
Spanish home prices rose 8.0% in the second quarter compared to the same period last year, a slight cooling compared to the first quarter of 2022, but price growth is still well above its historical average.
On a quarterly basis, prices rose 1.9% in the second quarter compared to 2.6% in the first quarter. New and existing home prices showed similar trends, although the former rose slightly more strongly (+8.8% year-on-year) than the latter (+7.9% YoY). Figures from Tinsa, which include a monthly profile and are well correlated with the INE quarterly index, show a weakening trend over the summer. In July, Spanish house prices still rose by 3% month-on-month, but this slowed down to a growth of 0.5% MoM in September.
The start of the Covid-19 pandemic has turbocharged price growth in many countries.
Since the start of 2020, prices of existing dwellings in Spain have increased by 11.5%.
This is slightly weaker than price growth in Portugal (+26.2%) and France (+15.5%), but stronger than in Italy where prices have risen by 7.2% since the outbreak of the pandemic.
These strong price dynamics during the pandemic stretched affordability to the limit.
Combined with a cocktail of rising mortgage rates, deteriorating economic prospects and high inflation eroding household purchasing power, the real estate market will continue to cool. We expect price growth to reach 7% in 2022, but slow to 1% next year. This means that nominal price growth will not be able to keep up with inflation.
With a current expected inflation rate of 8.7% for this year, real price growth will turn negative at -1.7%. At an expected inflation rate of 4.4%, real price growth in 2023 will also be negative at -3.4%.
Price growth starting to cool everywhere except in the metropolitan areas.
Although house prices have risen sharply in almost all of Spain, there are varying dynamics across regions and cities.
The latest Tinsa figures for September show that price growth is beginning to cool off everywhere except in the metropolitan areas. Price dynamics have slowed down the most on the Mediterranean coast and in the Balearic and Canary Islands.
Price growth of 6.5% on the Mediterranean coast and 3.5% in the Balearic and Canary Islands was well below the national average.
On the Islands, in particular, price growth has come to a complete halt this year, even declining slightly over the summer.
The cooling off does, however, come after strong price growth at the start of the pandemic.
By comparison, in metropolitan areas, price growth continues unabated for now. Although house prices in the rest of Spain fell by an average of 0.4% compared to August, in metropolitan areas they still rose by 1.2% in one month, bringing the total annual growth rate in September to 10.0%.