We expect house price growth of 3% this year, moderating slightly from last year. Several factors that boosted growth last year will slow down now that the catch-up effect has worn off, including the gradual weakening of price increases for new-build homes and less strong demand from foreigners buying a home in Spain. In addition, affordability for first-time buyers will remain under strong pressure, which will put a brake on further price increases. Although interest rates have fallen somewhat in the last few weeks of 2023, affordability remains worse than a few years ago.
Moreover, the further downside potential for fixed interest rates is relatively limited. Markets have already strongly anticipated the European Central Bank’s first rate cuts this year. Moreover, the ECB will continue to reduce its bond portfolio next year and the precarious state of public finances also limits further downside potential. Therefore, we think long-term interest rates will end this year at about the same level as now. However, floating rates could fall more sharply, especially if the ECB starts cutting policy rates. This could support the market in the second half of the year.
In addition, further growth in demand will be a key driver of house prices in the coming years. According to projections by the Spanish statistical office, the number of Spanish households will increase by 2.7 million between 2022 and 2037, representing growth of 14.5%. This will put upward pressure on prices. Moreover, Spaniards themselves are very optimistic about the development of house prices. An ING survey conducted by IPSOS in late November showed that only a minority of 7% thought house prices would fall in 2024.
All in all, we expect 3% growth for this year, which in real terms amounts to de facto stagnation, considering the expected inflation of around 3%.