Spain's home sales declined for the fifth month in a row in June. According to the National Institute of Statistics, sales decreased in June by 6.4% year-on-year. So far this year, house sales are down 4% year-on-year to 315,783 transactions.
However, sales remain at decade highs for the first half of the year, with the new homes market especially resilient after growing by 10.7% year-on-year in June, and accumulating 60,426 transactions since the beginning of the year, matching the same period in 2022.
Over the last 12 months, more than 634,000 homes have been sold, 1% more than the previous 12 months, when interest rates were exceptionally low.
By type of buyer, foreign purchases are holding up better than purchases by Spanish people. The number of purchasers from abroad fell by just 2.7% year-on-year in the first quarter 2023, compared with minus 11.6% by Spaniards, according to the latest data published by the Ministry of Transport, Mobility and Urban Agenda.
Rising interest rates are having a stronger impact on the mortgage market than on housing demand, suggesting a significant proportion of buyers are not dependent on external financing.
Since the European Central Bank started to hike rates in July 2022, the average mortgage interest rate in Spain has increase up to 4.045% in June 2023, compared with 1.8% a year earlier. This is the highest level since February 2009 when mortgage rates stood at 4.3%, according to the Bank of Spain.
The 12-month Euribor, the index to which most Spanish mortgages are referenced, closed July at 4.149%, compared with 4.007% in June and 0.992% in June 2022. It is at its highest level since November 2008, when it closed at 4.35%.
The impact of the rate hikes is being felt in the number of new mortgages which plummeted 24% year-on-year in May. This is the biggest drop since January 2021 and extends the cumulative decline in the first five months of the year to 11.9%, although mortgages granted are at similar level than before the pandemic.
Looking ahead, home sales are expected to continue to fall as economists judge an additional ECB interest hike is possible before pausing. Further downside risk lies in a higher-than-expected rise in interest rates while continued elevated inflation drags household income, which could ignite a further drop in home sales.
On the other hand, the resilience of the Spanish labour market is likely to continue to support housing demand. Employment is expected to grow 3.6% with 700,000 new jobs by 2024, wages are set to grow by 5% in 2023 and 2% in 2024, while inflation is set to continue its downward trend to 2% in 2024 according to Oxford Economics data.
Unlike in 2008, there is no oversupply and banks have tightened credit standards for mortgages since the previous expansionary cycle. Debtors are also now less vulnerable to rising interest rates as fixed-rate mortgages granted over the past three years have exceeded the number of variable-rate mortgages. In 2007, fixed-rate mortgages accounted for less than 2% of total mortgages granted that year.