Housing market slowing down, but sharp correction unlikely


Caixabank | Housing sales remain elevated (649,000 units in 2022, the highest since 2008) but there are emerging signs of deceleration of housing demand: in December housing sales declined by 10.2% year-on-year and new credit for house purchases declined by 14.2% year-on-year. We expect housing sales to decline sharply in 2023 (-24% to 480,000) mainly due to the impact of the increase in interest rates and the impact of higher inflation on real household incomes.

House price growth has begun to moderate after peaking in Q1 2022. We expect a sharp deceleration in housing prices, but a hard landing scenario in nominal terms is deemed unlikely as there is no evidence of a housing bubble in the Spanish housing market (as opposed to what may be the case in other advanced economies). On the one hand, prices are broadly in line with fundamentals, and the boom in housing purchases in 2022 can be explained by several factors that fueled demand (excess savings, favorable financial conditions, change in preferences) with a limited role of expectations on housing value appreciation (a key ingredient in housing bubbles). On the other hand, there has been no excessive growth in credit, no loosening of credit standards and banks are not excessively exposed to the sector (see the table above). For the MITMA index (appraisal value) we expect a deceleration from 5% growth in 2022 to close to stagnation in 2023 (0.2%).

Housing supply will remain very limited: new building permits (110,000 units in the last 12 months to November 2022) are about half the figure of net household creation (210,000 in 2022). Lower economic growth, elevated construction costs and weaker housing demand will not favor the recovery of supply in 2023.

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