Interest rate rises echo in the European real estate market. In the fourth quarter of 2022, Germany recorded a drop in house prices for the first time in twelve years. This is a year-on-year decline of 3.6%, as reported by the Federal Statistical Office. In Spain, prices follow the same direction: according to notaries, they fell 0.5% year-on-year in December and 1.7% in January. And while prices are expected to fall further into 2023, the banking crisis may reverse or slow this plunge.
In recent weeks, panic spread in the financial markets after the bankruptcy of Silicon Valley Bank (SVB) in the United States. The chaos continued with the fall of the Swiss bank Credit Suisse, which was finally bought by UBS, its biggest competitor; and it continues now with Deutsche Bank, whose shares have fallen on the stock market by more than 20% since the SVB crisis.
“For now, there are no reasons to think that the storm will continue for Spanish banks. The end of the 2022 financial year has been very positive for most of themâ€, affirm the specialists of the financial and real estate comparator HelpMyCash.com. Even so, uncertainty can change the course of the Spanish real estate market.
The slowdown in the sector began after the interest rate hikes carried out by the European Central Bank since July 2022. The objective of these measures is to contain inflation in the euro area, which exceeded 10% in November and closed March at 8 ,5%. But its effect on the real estate market goes a little further: with high rates, mortgage interest rates grow and loans become more expensive. The average Euribor in July amounted to 0.99% and rose to 3.53% in February. It was believed that it could reach 4% in March, but market instability caused it to fall from 3.74% in the first days of this month to 3.46%.
With the increase in the cost of mortgages, “it is clear that a part of the population can no longer access them, so the demand is reduced,” they say from HelpMyCash. And those who can access it allocate less money to buy the house to compensate for the increase in credit. That is why experts expect house prices to drop this year, albeit in moderate proportions. However, “the expected drop could be contained if the European Central Bank decides to raise interest rates less in response to market uncertainty,” they assert from HelpMyCash.
Statistics up to now predicted a decline in housing prices of between 1% and 4% for 2023. Bankinter, for example, anticipated a 3% drop for this year, while ING bank forecast a reduction in terms real of 3.4%. But if the European Central Bank moderates the rise in interest rates, prices could remain stable, although with some setbacks in specific areas.
“The European Central Bank is now facing a complex situation, since inflation has not yet come down —let’s remember that the objective is to contain it at 2%—, so the plan is to continue with rate increases. But economic uncertainty may force it to moderate these increases in the coming months. On that will depend, among other things, the evolution of the price of housing in Spain â€, they conclude from HelpMyCash.
