The real estate market ended 2021 and started 2022 like a shot, but the war in Ukraine predicts a radical change of scenery. Last year, home sales grew by more than 38% (favored by the low figures for 2020) and this dynamic was maintained in January and February with a rise of 26.2%. However, the BBVA Research forecast is that in 2022 as a whole, operations will fall by 1.3% compared to the previous year. The bank’s study department, which published its report on Wednesday Real Estate Situationforesees that this setback will not prevent the growth of prices, which will be 5%, in any case below the forecast inflation.
The impact of the conflict in eastern Europe on the real estate sector will not occur so much directly, as due to the uncertainty that comes with it. In fact, the report highlights that home purchases by Russians and Ukrainians in Spain are almost marginal. Russian buyers represent just 2.2% of the operations carried out by foreigners, while the Ukrainians account for 1.2%. However, the effect will be more noticeable in some communities such as Catalonia and the Valencian Community, where its weight in the market is somewhat greater.
But the most important thing, because it will affect more intensely and also throughout the territory, is the effect of the war on the economy. With all organizations cutting their forecasts for economic growth and predicting a rebound in inflation well above what is desirable, BBVA projects that some 670,000 units will change hands in Spain this year, that is, 1.3% less than in 2021, when 678,000 operations were exceeded. Among the factors that continue to drive demand, the bank’s research department cites the savings that many families continue to accumulate as a result of the pandemic (in 2020 consumption plummeted), the return of many foreign buyers if sanitary conditions continue to improve and the favorable financial scenario, which means that investment in housing continues to offer more returns than others such as deposits or debt bonds.
This scenario, the report maintains, will continue despite the more than foreseeable rise in interest rates. The years of negative interest are over and BBVA forecasts that the 12-month Euribor, which is the indicator to which most mortgages in Spain are referenced, will end this 2022 at 0.5%. That means it will grow one point in a year, and that pace is expected to continue into 2023, when it will end at 1.5%, according to forecasts. This is a moderate growth in relation to inflation, although the report recalls that a recent survey by the Bank of Spain indicated that entities are going to tighten the conditions for granting mortgages.
However, the shortage of supply and inflation will cause prices to rise 5% this year. It is less than the expected average inflation (7%) and in any case, according to the report, it will not prevent an improvement from the point of view of housing accessibility since the mortgage effort (the percentage of income to pay the loan, Once discounted that there are savings equivalent to 20% of the value of the house for the bank to grant it) it will drop to 25.8%, compared to 26.2% in 2021. Looking ahead to 2023, this indicator will grow up to 27%, driven by the already mentioned rise in rates, a new increase in prices (5.8% in the whole of next year) and the return of inflation to more normal parameters (which will also limit wage growth) .
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All in all, the grimmest picture in the report is the one that points to the long term due to the brake on new construction. The bank’s experts point to regulatory uncertainties (the future housing law) and economic uncertainties (rise in material prices and supply problems) to explain why last year, for example, the growth in housing demand was much higher to which the construction of new houses increased. The factors that play against the sector are maintained or have worsened with the war in Ukraine, so this year a very moderate growth in permits for new construction is expected (for some 120,000 homes, compared to 108,000 last year). In 2023, if the international situation is expected to ease and thanks to the arrival of European funds, a greater jump is expected, exceeding permits for 140,000 homes. But if the situation is not corrected, the mismatch between supply and demand could be a serious setback for the real estate market in the coming years.