Spanish property market shows recovery in January

An ongoing slowdown in home sales in Spain showed signs of recovery in January – the last full month for which figures are available. The National Statistics Institute (INE) revealed that the year-on-year decrease for the first month of 2024 was just 2.1%, marking an upturn since the closing months of 2023. Figures for October showed a 11.1% annual reduction, followed by 8.7% in November, meaning numbers for January 2024 point at an increase in sales after a difficult final quarter.

To date, sales and purchases of residential property in Spain have shown year-on-year declines each month for the past 12 months, but market prices do not appear to have been affected by this trend.

Home values are continuing to rise, albeit gradually, but mortgage finance issues appear to be directly responsible for fewer purchases. Banks are applying tougher conditions for granting new loans, and the unprecedently-sharp rise in Eurozone interest rates since late 2022 mean mortgages are far more expensive.

As Spanish variable-rate mortgages are typically reviewed annually and adjusted to the current Eurozone interest rates, known as the Euribor, this means the full impact of the hikes was not seen by every homeowner in Spain with a loan until the closing months of 2023.

Still in decline, but second-highest sales volume since recession

INE details show that a total of 54,346 homes were sold in Spain in January 2024 – a time which is traditionally an off-peak sales month in any case, with purchases tending to spike just before and during summer – compared with 55,496 residential property sales in January 2023.

But this shrinkage is in no way close to that seen at the beginning of the recession when home values and purchases tanked. In fact, INE data reveal that January 2024 accounted for the second-highest number of sales since the same month in 2009.

Last January saw the best results since that bleak time now 15 years ago. At the start of 2023, residential property purchases went up 4.9% year on year, despite the preceding few months showing early signs of a slowdown. By February 2023, home sales were down 6.6% based on the same month the previous year – a drop which swelled to 15.6% by December, when only 36,698 properties were sold.

This means that, despite property market growth still being some way off, the increase in sales from month to month between December 2023 and January 2024 was an impressive 48.1%.

That said, a gulf normally exists between year-end and year-opening home sale figures, given that transactions started in the run-up to the festive season are often not closed until January, due to the inevitable reduction in all non-Christmas-related business activity during that time of year.

New build 'honeymoon'

Estate agents are optimistic that the winding-down in property purchases could soon start to reverse, especially when considering that sales of new builds actually went up in January compared with the same month in 2023.

With brand-new homes registering a 3.6% rise in sales, property professionals on the high street concur that this type of building is enjoying a fresh honeymoon era, but are concerned that if new development prices continue to rise at their current rate, this may not last long.

Over 2023, new builds went up in price at nearly three times the rate of pre-owned homes – by 8%, compared with 3.2%.

Although new developments are much reduced nowadays – compared with the prolific over-building of the early 2000s which triggered the housing market crash of 2008 – their sales still make up a disproportionate percentage of the total in the context of their availability.

Around 1,000 fewer homes were built in 2023 compared with 2022, reducing to 5% of Spain's Gross Domestic Product (GDP) – a third of that of tourism, and a third of that of the hospitality sector – yet they accounted for one in five home sales last year.

In 2023, a total of 10,949 newly-built properties were sold, or 20.1% of all purchases that year, compared with pre-owned homes, which made up 79.9%.

Whilst new-build sales rose in January by 3.6%, purchases of formerly-owned homes fell by 3.4%.

Which regions saw the most home sales?

Of Spain's 19 autonomously-governed regions, eight reported an increase in residential property purchases in January, with the highest rises – above 20% - seen in central and northern parts and largely in land-locked areas.

Castilla-La Mancha – the plains surrounding Madrid – along with the far north-western region of Galicia and the centre-northern Castilla y León noted the greatest sales rises, whilst a significant drop was seen in two of the most affluent regions.

The worst-performing region was La Rioja, close to the Pyrénées, with 12.8% fewer sales, followed by the capital, Madrid, with a reduction of 11.6%, and the Basque Country on the north coast, where purchases fell by 11.5%.

In terms of outright numbers, more properties were sold in the southern region of Andalucía – one of the country's largest by land mass – than anywhere else, with 10,290, meaning that nearly one in five homes in Spain that changed hands in January 2024 was within this territory.

North-eastern Catalunya came next with 8,986 and its southern neighbour, the Comunidad Valenciana, third with 8,469, meaning in terms of population and area size, these smaller regions were, in practice, on a near-equal footing with Andalucía, showing that Mediterranean and southern mainland parts continue to dominate the estate agency market.

Eurozone interest rate hikes 'could tail off from June', stimulating home sales

At present, the property market is apparently being largely shored up by cash buyers who do not need a mortgage, since the plummeting sales figures show a direct and positive relationship with rises in the Euribor.

Although the European Central Bank (BCE) increased rates yet again in March, to 3.72%, its latest communication suggested a 'scaling back' would start in June if the common currency area's present economic panorama remains similar by the end of the second quarter of 2024.

Rates soared from negative figures in summer 2022 to nearly 4% by early 2023 in a bid to quash spiralling inflation in the Eurozone. Several Eurozone countries saw domestic inflation soar to above 10% or even 12%, although it remained moderate in Spain throughout, staying well below 5% and mostly hovering at about 3%.

As a result of interest rate hikes, these same countries afflicted by rocketing prices are now showing inflation rates in low single figures, meaning the BCE is quietly confident of being able to ease off Eurobor increases.

Potential homebuyers, and estate agencies, have long been watching Euribor trends and waiting with bated breath for rates to fall, making mortgages cheaper again.

In the context of lower-priced mortgages, property values have greater potential for increasing independently of market forces, since higher home prices will not necessarily mean greater costs for non-cash buyers.

Additionally, if home values do not increase significantly, lower mortgage interest rates mean buyers are able to secure greater quality and space and have a wider scope of choice for the same monthly budget.