According to CaixaBank Research, the economic analysis centre for the Spanish financial services company, housing prices in Spain are expected to rise further than previous estimates.
During a presentation at the IV National Housing Congress in Malaga, the company’s Lead Economist Judit Montoriol suggested that the Euribor (Euro Interbank Offered Rate) will decline and house prices will accelerate.
The Euribor is the main reference for mortgage interest rates in Spain, which had a 3% provisional average in September but is expected to fall to 2.65% by the end of the year. CaixaBank then forecasts a continuing downward trend with the Euribor dropping as low as 2.1% – 2.15% next year.
This slump is attributed to interest rate cuts made by the European Central Bank (ECB) over the last few months, with further reductions expected going into next year. While this was intended to make borrowing more affordable, it is boosting demand for residential property mortgages, which is then projected to drive housing prices up.
So, how will the housing market in Spain change in the next couple of years, and what can developers and buyers expect?
House prices in Spain expected to rise over the next 2 years
The latest forecasts based on data from sources such as the Ministry of Housing and the National Statistics Institute (INE) predict an increase of 4.4% to 5% by the end of 2024, which is a significant revision from the earlier figures of 2.7% to 3.5%.
In 2025, CaixaBank anticipates housing prices to increase up to 2.8% further. This is adjusted to reflect the shifting expectations from price growth exceeding projections due to several economic factors.
The Euribor reductions are making it more affordable to finance a home in Spain, while the country’s economic outlook has improved overall, increasing consumer confidence and spurring greater demand for property investments.
Population growth in Spain is also playing a key role, as the formation of more households is naturally increasing the demand for homes, which then puts pressure on the housing supply and pushes prices higher.
Population growth to create more households
The INE’s latest projections estimate around 330,000 new households will form in Spain every year from 2024 to 2028, which is much higher than the previous annual estimate of 215,000.
However, with household formation outpacing available housing stock, the growing gap between supply and demand will result in a housing shortage that will contribute to sustained price growth.
Higher construction costs limiting new builds
This will also be exacerbated by limited new construction. While CaixaBank predicts that 240,000 building permits will be issued over the next two years, this is significantly lower than the expected number of households forming.
Construction costs in Spain are still 30% higher than before the COVID-19 pandemic, with no predictions of this decreasing, which makes it difficult for developers to deliver new housing without passing the costs on to buyers.
Property transactions should increase slightly
While CaixaBank previously predicted around 550,000 property transactions would take place in 2024, it has now revised this estimate to 564,000. The previous estimate of 552,000 property sales in 2025 has also been updated to 566,000.
More buyers will enter the housing market to take advantage of more favourable conditions before prices rise, but while the demand for housing continues to grow – as reflected by the upward revisions to the anticipated number of property transactions each year – there may not be enough housing available to meet this demand.
Strong economic growth could encourage homebuyers
With the tourism sector driving economic growth in Spain, the job market and household incomes are also improving. Increased consumer confidence and disposable income for many families translates to more potential homebuyers.
Originally projecting gross domestic product (GDP) growth of 2.4% in 2024, CaixaBank is now forecasting at least 2.7% due to the country’s robust economic performance, with strong internal demand and a positive labour outlook.
ECB monetary policy will shape the housing market
CaixaBank also expects the European Central Bank (ECB) to influence the Spanish housing market through its policy decisions, predicting interest rate cuts in 2025 that will lower borrowing costs and make Spanish mortgages more appealing.
Currently at 3.5%, CaixaBank estimates that the Eurozone interest rate equilibrium will settle between 2% and 2.25%. The ECB reducing rates will directly impact the housing market by increasing demand, transactions, and property prices.
What’s the long-term outlook for housing prices in Spain?
Driven by lower borrowing costs and strong population growth, the housing market in Spain should be dynamic in the coming years. Despite the challenges posed by high construction costs and limited housing supply, the overall outlook is positive, as the Spanish economy is expected to continue growing.
These conditions set the stage for a thriving housing sector with sustained price rises, so expansion into real estate in Spain remains a favourable option for at least the next two years.
If you are looking to purchase property in Spain, whether as a second home for your family or a buy-to-let that you can rent out to holidaymakers, we can help at Manzanares Lawyers.
We are highly qualified and experienced Spanish real estate lawyers with detailed knowledge of property law in Spain and multiple offices, so we are well-placed to assist with property transactions in Andalucia and Ibiza.
Get in touch with our team by phone or email to learn more about how we can help you buy or sell property in Spain.
