2025 will be a challenging year for homebuyers

The impact of scarcity on the Spanish housing market

The scarcity of supply on the housing market seems to be one of the main factors that is expected to cause price increases on the Spanish housing market in 2025. The shortage of available housing, both new and existing, is causing an imbalance between supply and demand. This shortage is largely due to the delay in the construction of new homes and the limited availability of building land. Contractors are also struggling with a shortage of qualified personnel, which is limiting construction production and making it more difficult to meet the growing demand.

Already visible in 2024

The impact of this scarcity was already clearly visible in the price development of 2024. House prices have already risen considerably in 2024, and this trend is expected to continue in 2025. This is particularly noticeable in large cities such as Madrid, Barcelona and ​​Valencia, and on the Mediterranean coast and the Spanish islands. The lack of supply will therefore remain a crucial factor in the development of property prices in Spain in 2025.

The main drivers behind the price increases

• The growing demand for housing, driven by factors such as population growth, economic recovery and the increase in foreign home buyers.
  
• The inability to keep up with the stronger growth in demand with supply.
• High construction costs due to the significant increase in the prices of building materials in recentyears.
• Rising wages in the construction sector and a lack of qualified personnel.

Spanish housing market 2024-2025

The Spanish housing market is currently in a strong position. There is strong demand, but supply is lagging behind. As a result, house prices are rising rapidly, especially for new-build homes.

Strong demand for housing

After a peak in 2022 with 650,000 housing transactions, the number of sales fell by 10.2% in 2023, mainly due to higher interest rates and the loss of demand related to the corona pandemic. In 2024, the number of sales stabilised at around 578,000 between January and August. This was still high compared to the average of 450,000 in the period from 2015 to 2019.

Who is buying?

Spanish first-home buyers in particular are back in the market, with growth of 8.6% in the first half of 2024 after a sharp decline in 2023. Foreign buyers remain active, with historically high levels of 87,600 transactions in the last four quarters, accounting for 14.7% of the total number of homes sold in Spain. Also, purchases of second homes in Spain by Spaniards themselves increased by 3.4%, accounting for just under 13% of the total number of homes sold in Spain.

Demand for housing is expected to remain strong in 2025, thanks to factors such as:

• More jobs: an expected 400,000 more workers.
  
• Higher wages: wage growth above inflation.
  
• Strong foreign demand: especially in popular regions, the Mediterranean coast and the Spanish islands.
  
• Healthy financial situation: Spanish household debt is at 45.4% of gross domestic product (GDP). This is lower than the eurozone average of 52.4%.

Interest rate level

The ECB's interest rate cuts are also ensuring that more prospective buyers can buy. In October 2024, the ECB cut the interest rate by 0.25% to 3.25%. The market expects four more interest rate cuts by the end of 2025.

Price increases continued in 2024

The combination of a limited housing stock, improved economic prospects and falling interest rates has led to a price increase of 7.1% in the first half of 2024, according to figures from the Spanish Statistics Office. New-build homes rose the most, with an increase of 10.7%. But the prices of existing homes also remained dynamic with an increase of 6.5%.

Largest price increases in regions with foreign buyers

Foreigners now represent more than 20% of all housing transactions, and their purchasing power is approximately 70% higher than that of Spanish buyers. The largest price increases are expected to take place in large cities, the Mediterranean coast, the Canary Islands and the Balearic Islands. This is due to the population concentration and strong demand from foreign buyers in these areas.

Solid foundations of the Spanish housing market

1. Strong labour market and income growth: Economic growth, driven mainly by the service sector, has created many new jobs and wage increases. This has significantly increased the gross disposable income of households.
   
2. Supply shortage: There is a shortage of more than 100,000 homes per year. In the next two years, fewer than 100,000 homes per year will be delivered, while demand could rise to more than 200,000 per year. The shortage is particularly high in cities such as Madrid, Barcelona, ​​Valencia, and on the Mediterranean coast.
3. Rents are rising: The shortage of rental properties is becoming increasingly acute. According to research, the supply of rental properties in Spain has decreased by 57% in the past three years. This is due to the growth of tourist rentals. As a result, rental prices have risen by 11% in 2024.
   
4. Falling interest rates: The ECB has already lowered the interest rate to 3.40% and may lower it again to 2.40% by the end of 2025. The 12-month Euribor could be around 2% by December 2025, making mortgages more affordable.

International interest is growing

Spain remains an attractive market for foreign investors, especially in the luxury and holiday home market. Regions on the Spanish Mediterranean coast and the Balearic Islands in particular attract a lot of attention from foreign home buyers because of the quality of life and the attractive returns. The Spanish housing market remains healthy, but the shortage of homes and rising prices could lead to prices rising to such a level that in some regions the high prices will actually slow down demand.

Expected price increases for 2025 vary

The price increases are mainly fuelled by a shortage of new construction. There are experts who predict a price increase of up to 10% for the year 2025. The 4 largest Spanish banks are a bit more cautious and predict a price increase in 2025 of between 4 and 4.5%. Just above the expected inflation. I agree with the Spanish banks. After all, trees don't grow to the sky.

2025 will be a challenging year for home buyers

For buyers, this means that 2025 will be a challenging year. Rising prices and a limited supply mean that home buyers will have to offer more and more, while tenants are confronted with rising rents. 2025 promises to be a dynamic year for the Spanish housing market!

Rinus van Vliet – Houses In Spain -
Sources that I consulted for this article: the Spanish bureau of statistics, publications of the professional organization of Spanish notaries and publications in the Spanish media.