The National Institute of Statistics' latest data shows the Spanish housing market continues its healthy trend, despite the adverse environment of high inflation, rising interest rates and the economic slowdown.
The number of housing sales transactions in September rose by almost 7% year-on-year, reaching 57,333 transactions, the best September result since 2007. As a result, transactions from January to September have increased by 18% year-on-year.
The savings surpluses accumulated during the pandemic and the relatively favourable trend in employment continue to drive demand in 2022. The robust data also suggests that households may be bringing forward their home purchase decisions before financing conditions tighten even more.
The upward cycle is, however, likely to have peaked. The transactions growth rate has been moderating over the past few quarters and transactions remained stable in September compared with August.
Domestic demand is expected to lose dynamism due to higher financing costs and lower real disposable income, which is forecast to decrease by 5% in 2022 according to Oxford Economics.
On the other hand, foreign demand is set to contract due to the economic slowdown in the UK, Germany and France, where most foreign buyers of Spanish properties come from. The decrease in foreign demand will affect mostly coastal locations, where it contributes highly to the market, closing more than 30% of transactions.
The adjustment of the housing market is likely to be limited with no sharp correction in prices as, unlike the bursting of the bubble in 2008, the supply of new houses is constrained.
New housing production has remained below 100,000 homes per year since the last decade compared to over 600,000 units in 2007.
The environment of economic uncertainty since the outbreak of war in Ukraine and the shortage of supplies and labour have led to some projects coming to a standstill and to a gradual reduction of construction activity over 2022.
New housing permits between January and August amount to 67,470, only 0.24% more than in the same period last year, according to data from the Ministry of Transport, Mobility and Urban Agenda.
In the first quarter of the year, new housing building permits went up by 19.1% year on year, in the second quarter, they went down by 1.,95% and barely 24,000 permits were granted. Moving into the third quarter, building permits recorded in July and August were 8.7% lower than in the same months in 2021.
Demand and production of new houses should however recover pace in the medium term driven by strong fundamentals. According to the latest projections published in October by the National Institute of Statistics, the population in Spain will increase by 9% over the coming 15 years with the number of households increasing by 14.5%.
By 2037, Spain is expected to gain 2.7 million additional households. The annual creation of households by 180,000 per year, will therefore exceed the actual production of new homes, so the longer-term outlook for the Spanish housing market therefore remains positive.