RESIDENTIAL property sales have been shrinking consistently throughout 2023, but latest figures show this trend is relenting.
The most recent data available from the National Statistics Institute (INE) are up to and including the month of October, and reveal an increase of 4% in estate agency market activity from September 2023.
Decline in sales and purchases is directly related to soaring Eurozone interest rates, which have now had an impact on all annually-reviewed variable-rate mortgages in Spain.
So far, the 11.1% fall in transactions in October 2023 based upon the same month last year has been one of the least dramatic since January, INE figures reveal.
On average, home sales have fallen year on year in 2023 by 8.7%, almost entirely due to the huge increases in the Euribor – the interest rate that applies to the common currency.
October 2023 saw 45,903 residential properties bought and sold, of which pre-owned homes made up around eight in 10 of the total – 37,056 overall - but which were down 13.5% on October 2022 figures.
New build sales increased very slightly year on year to a total of 8,847, being a rise of 0.8%.
Although Euribor rate hikes do not affect those buying property in cash, the dramatic rise in interest has led potential buyers to stall their plans if they need a mortgage, given the extra expense involved and the likelihood of having to moderate their home-purchasing ambitions.
Euribor below 4% and frozen for second consecutive month
The European Central Bank (BCE), led by former International Monetary Fund (FMI) chairwoman Christine Lagarde, has opted to freeze rates for December – the second consecutive month with no increases.
Mortgages due for annual review in December will go up as the Euribor rises from late 2022 to now finally take effect (photo: BBVA)
But mortgages due for review at the end of December will still rise as the knock-on effects from earlier months will not yet have been felt.
October saw the Euribor reach heights not seen since 2008, closing the month on 4.173%, but the average for December is calculated to be around 3.753%.
Fastest and highest rises in currency's 24-year history
Whilst still a long way short of the historic maximum of 5.393% - seen in July 2008 – the Eurozone interest rate hikes from 2022 to date have been the sharpest in the lifespan of the common currency, rocketing by over 4.5 percentage points in barely 18 months, beating even that seen during Spain's property market boom years.
Back then, between June 2005 and July 2008, the rate rose by 3.25 percentage points in three years, forced up by inflation linked to crude oil prices.
Not since the crude-oil price hikes over the three years from June 2005 to July 2008 has such a dramatic rise in the Euribor been triggered by the European Central Bank (pictured). Photo: EFE
It dropped below zero for the first time ever in February 2016 and remained that way for over six years, with the historic minimum reached in January 2021, at -0.504%.
Negative figures ceased in April 2022, with the rate rising slightly above zero – to 0.013% - and above 1% last August for the first time since 2015.
Since then, increases have been exceptionally sharp, more so than at any other time in the 24-year life of the euro.
Inflation drop predicted in 2024
The BCE has long been warning that there is no likelihood of a significant Euribor decrease in the foreseeable future as inflation remains too high, but in its final meeting of 2023, the board agreed that rates were currently high enough for the target of 2% inflation to remain on track.
Whilst no longer voicing its conviction that inflation 'will remain too high for too long', the BCE has recalled that a slowdown in retail price rises seen in the last month or so may not last.
It predicts consumer prices will 'temporarily' increase 'in the short term', meaning a brief setback to inflation-lowering targets.
Latest BCE economic forecasts suggest inflation in 2024 will reduce from the current 3.2% to about 2.7%.
In theory, this should lead to interest rates coming down, and market analysts are predicting a fall of around 1.35 percentage points in 2024 – but as yet, Mme Lagarde has not made any mention of this becoming reality.
MORTGAGE signings have dropped by nearly a fifth as a result of the greatest leap in interest rates in over 20 years – but debt defaults have not risen, despite the Euribor being at its highest since 2011.
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