Housing transactions will fall 30% in 2023 due to rising rates and falling savings

Research by BBVA ensures that transactions living place are reduced by around 30% in 2023, given the lower economic growth, domestic and foreign, the increase in interest rates and the reduction of savings accumulated during the pandemic.

While the adjustment will be important — mostly in used housing — sales are expected to be just above 500,000, a level similar to the annual average between 2015 and 2019, according to Real estate observatory of the first quarter of this year, which was published this Friday by BBVA Research.

The report warns of relatively high uncertainty, a higher than expected rise in interest rates and maintenance inflation at high rates will continue to negatively affect household income, which progressively drains accumulated savings.

Consequently, the demand for apartments on the real estate market will decrease in the coming quarters, the reduction of the second residence segment and the demand of foreigners, under the influence of the slowdown in growth in the main European countries, is particularly relevant.

For their part, experts from BBVA Research predict that the number of new domestic visas could decrease by around 9% in 2023. Among the factors that will limit the progress of the supply are the increase in financing costs, the increase in wages, the lack of skilled labor, the still high prices of some inputs , worsening demand expectations, as well as regulatory uncertainty. In any case, the lack of new housing should limit the effect.

Reactivation in 2024

For its part, it is expected that the price will remain practically unchanged in 2023 (-0.2%), although in reality the correction would amount to 3.9%. Lack of demand will have a negative impact on housing prices. However, high inflation and relative scarcity of supply will partially mitigate this negative effect.

The sector could begin to show new reactivation in 2024 with a moderate increase in demand, supply and prices, after this year’s adjustment and recovery of the economy, in conditions of reduced supply. So, House prices are expected to grow by around 2.5%, sales by around 5%, and visas by around 6%.

All this while allowing for the main risks that threaten the sector: additional monetary tightening as a consequence of high inflation, lack of skilled labor and construction land, as well as increasing uncertainty regarding economic policy.