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Housing Prices in 2022


The real estate market has been a safe-haven asset for decades and it seems that in 2022, despite the new Omicron variant, high inflation rates and possible increase of interest rates, investors will continue to bet on the residential sector. As an established tradition, every January different panels of experts from the real estate sector give their opinion on how they consider that the real estate market in Spain will evolve during the next 12 months. At Peace of Mind, we gather their opinions and summarize them in this blog.

But before getting into the heart of the matter ...


How did house prices increase during 2021?

According to the appraiser company Tinsa, "new and second-hand houses closed 2001 on average 4,3% more expensive than a year ago" with increases of around 5% in Madrid and 2,8% in Barcelona.

Knight Frank's Global Residential Cities Index analyses the residential market of 150 cities around the world and agrees that during 2021 there were significant increases in housing prices, but the figures they give for the Spanish market are lower than Tinsa’s with a 2, 9% increase in Madrid and 1,3% in Barcelona.

According to the National Institute of Statistics (INE), the price of real estate in Spain rose by 4,2% in the third quarter of 2021 compared with the same period in 2020.


What will happen to house prices in 2022 and will transactions increase?


Looking at 2022, the team of economists from Caixabank estimate that "the housing price will rise another 4% year-on-year". They contemplate two scenarios, the most pessimistic in which housing during this year could devaluate by 1% year-on-year, and the optimistic once in which there would be a real rise of 4.8% in 2022, which adding a 3% due to inflation should be up to 7.8% in nominal terms.


For Eduardo Carreño, manager of residential operations at Metrovacesa, “2022 will consolidate the trends seen in 2021. There will be a strong demand for housing, especially for new development, which will translate into moderate price increases, at levels similar to inflation".


According to Tinsa, in 2022 prices will continue to rise, standing between 4% and 5% higher. For the national director of Residential & Land of CBRE Spain, prices will grow by 4,6%, highlighting the increase in new development projects which will be around 6,6%.

Those consulted also agree that in 2022 the number of

transactions that will be carried out will increase compared to 2021. Waiting for the INE to publish the data for the last two months, everything points to the fact that in 2021 the number of residential real estate transactions in Spain will exceed 500,000, a quantity reached for the last time in 2008.


The estimation from the real estate portal Idealista is that sales will "possibly remain above 550,000" while Eduard Mendiluce, CEO of Anticipa and Alisenda considers that there will be more than 600,000 transactions and therefore he believes it is important to activate measures to promote supply and flee from excessive regulation”.


What risks does the real state sector face?

Inflation, the price increase in raw materials and the shortage of qualified workers in the sector will also influence house prices making them rise. On top of this, interest rates going up could on the other hand, slow sales down.

High inflation would dampen demand, especially if inflation is expected to be structural and not transitory. This is something that can reduce consumers purchasing power and cause loss of confidence and reduce the rate of economic recovery.


For José María Basañez, president of Tecnitasa, "The increase in construction materials prices and supply problems will cause prices to rise in the real estate sector, in general, and in housing in particular." If these factors cause widespread delays in the delivery of new developments, it could produce "a large increase in costs, a temporary decrease in supply and the consequent rise in sale prices". Juan Antonio Gómez-Pintado, president of Vía Ágora, quantifies construction costs rising by 8% during 2021 due to the increase in raw material prices.


Another factor that must be taken into consideration is the new way of calculating the tax base of the Tax on Patrimonial Transmissions (ITP) and Documented Legal Acts and that of Successions and Donations that will presumably produce a tax increases related to the real estate sector.


What is the forecast for the rental market?

Before Covid-19, rental prices had been rising yearly and exceeding historical highs in cities as Madrid or Barcelona, ​​due, among other factors, to the gap between the shortage of properties for rent and the existing high demand.


Forecasts suggest that in 2022 there will be a turning point in the rental market, with a recovery in demand and prices, which fell 4.5% on average in 2021. The first signs of the recovery will be seen first in large cities and then in the rest of the country.


Experts consider that home rental prices will increase, among other reasons, due to the foreseeable improvement in employment that will rase the demand, and the rebound in inflation that will cause upward rent adjustments.


We will also have to see how the market reacts during the second semester when the measures taken by the government to contain lease in the housing law come into force. They have defined a “rent ceiling” to what landlords may charge tenants in certain areas and also established a surcharge on empty flat.


In any case, price controls will not be in force until the end of 2023 or the beginning of 2024. Bankinter considers that the legislative changes related to the rental activity “will have a limited practical application that will not alter the current status quo, except maybe in very specific locations”.


For the national director of Residential & Land of CBRE Spain " the same upward trend is expected in the price of residential rent in 2022 ", an opinion with which Colliers International Spain agrees and goes further in their statement "pre-pandemic levels will be reached in 2022”.


Conclusion

While no one can predict exactly what will happen, the trends listed above mean housing prices will continue to rise during 2022, although, as every year, there is no consensus among the experts on how much this increase will be.


From Bankinter they speak of an increase of 2%, Solvia of 3%, Caixabank contemplates an increase of 4% and the forecasts of the Spanish Association for Value Analysis point to an increase of 5% in new developments and 6% in second-hand properties.

Regarding the rise in rental home prices, there is also unanimity in the sector.


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