House prices rose by 3.6% year-on-year in the second quarter of the year, which was in line with the rise recorded three months earlier, according to data published this month by the National Statistics Institute (INE).
With this new increase, house prices have risen for 37 quarters in a row despite rising interest rates and financing costs.
Prices of new-build homes are rising at a faster pace than those of secondhand houses, increasing by 7.7% and 2.9% respectively. This pattern is observed in all the autonomous regions and is explained by the scarcity of new-build supply combined with high construction costs, which are driving up house prices despite the sharp rise in interest rates.
Housing supply is very limited and not enough to meet needs considering the demographic trends. The number of new building permits, which stands at 112,344 homes in the last 12 months to May, remains below the net household creation which is estimated at 201,211 for 2023, according to the INE.
Construction activity is not set to intensify in the short term due to high construction and labour costs combined with a shortage of workers.
On the demand side, the pace of the slowdown is proving to be gentler than anticipated. Demand remains relatively strong, supported by several factors such as the resilience of the labour market. Home sales transactions from January to July are still 15.8% above 2019 level for the same period, even though they are down 5.3% compared with 2022.
Looking ahead, the slowdown in sales from the high figures recorded in 2022 is likely to continue in 2024 with interest rates remaining higher for longer. The supply of new housing is set to remain below net household creation and construction costs to follow a downward trajectory, although still above the pre-pandemic level. Thus, house prices growth are likely to moderate, but no significant adjustment is expected.