The expansive cycle of the real estate market consolidates

The Spanish real estate market accelerated in 2024, supported by the easing of financial conditions and the strong performance of the Spanish economy, which grew by a significant 3.2%. Everyone witnessed how the sector's indicators gained momentum as the year progressed: housing demand regained dynamism after a temporary dip in 2023, thanks to lower interest rates, job creation, significant migratory flows and strong foreign demand; and house prices also gained momentum throughout the year, with advances of around 7%-8% compared to 4% the previous year. 

However, this strong demand and price growth is taking place in a context of a severe shortage of housing supply, which remains the main imbalance the real estate sector is facing, both in the sale market and especially in the rental market. All this, together with the absence of other imbalances related to the excessive growth of mortgage credit and developer credit, or to the relaxation of credit access conditions, allay fears of a sharp correction like the one that took place after the previous expansionary cycle from 2000 to 2007, which had dire consequences for the real estate and banking sector, as well as the economy overall. The potential risks to financial stability are low, although the social repercussions of this housing shortage are evident and could end up conditioning the growth potential of the Spanish economy, according to CaixaBank Research's Real Estate Sector Report.

There is a broad consensus on the need to increase the housing supply, especially social and affordable housing. Although the generation of new housing is a long and slow process, 2024 began to show a trend change in the main construction sector indicators, pointing to greater housing production. However, the number of completed social housing units is still clearly insufficient to meet the needs of the population with the greatest difficulties in accessing housing.

The first article in CaixaBank Research's Real Estate Sector Report outlines the new forecast scenario. It predicts that demand will continue to be very strong and, although supply will continue to grow gradually, the housing deficit accumulated in recent years will sustain significant growth in prices, at similar levels to the current ones. Furthermore, it expects the expansive trend to spread to more geographical locations. The sharp rise in house prices in large cities is causing a shift in demand for housing to more affordable peripheral areas, a pattern known in the sector as an ‘oil stain’ that is common as the residential market's expansionary cycle consolidates. At the provincial level, temperature appears to be a relevant factor: housing sales are growing more vigorously in ‘cool Spain’, in the northwest of the peninsula, while traditional tourist areas show a softer increase in demand. 

This report investigates how European property markets have responded to the easing of financial conditions. In some EU countries, including Portugal, there is a strong appreciation of housing prices, while in others, such as Germany and France, some correction is taking place after the strong post-pandemic increases. Despite differences among countries, the strong growth in house prices in the Eurozone is generally worrying, as overvaluation is detected in 80% of the region's residential markets.

The Real Estate Sector Report also focuses on the commercial real estate market. After registering very significant falls in 2023 and starting to pick up again in 2024, both investment and the number of transactions are expected to continue to recover, supported by the consolidation of the decline in interest rates. Spain is positioned among the most attractive destinations for international investment in commercial real estate among the main European economies, thanks to solid macroeconomic fundamentals, especially in the residential, hotel and logistics segments.