CaixaBank Predicts Decline in Euribor and Surge in Housing Prices Until 2025
CaixaBank Research has revised its predictions for Spain’s housing market, painting a more dynamic picture for the years leading up to 2025. According to the research presented by Judit Montoriol, the Lead Economist at CaixaBank Research, during the IV National Housing Congress in Málaga, the Euribor will continue to drop, while housing prices are expected to accelerate beyond previous estimates.
These adjustments follow the European Central Bank’s (ECB) interest rate cuts over the past three months, with additional reductions expected into 2024 and 2025. This easing monetary policy is set to trigger increased demand for housing and cause prices to climb more rapidly than previously anticipated. Montoriol’s analysis points to a more competitive housing market, driven by cheaper borrowing costs and a surge in housing demand.
Euribor Forecast: Steady Decline by the End of 2024
Idealista report that one of the most significant projections from CaixaBank Research is the steady decline in the Euribor, the primary reference rate for mortgages in Spain. By the end of 2024, CaixaBank expects the Euribor to fall to around 2.65%, a substantial decrease from its September provisional average of 3%. This forecast also points to a continued downward trend, with rates dropping further to between 2.1% and 2.15% in 2025.
The drop in Euribor is attributed to the series of interest rate cuts executed by the ECB. These cuts are designed to make borrowing more affordable, especially in the real estate sector, where the Euribor plays a critical role in determining mortgage costs.
ECB’s Influence on Mortgage Demand and Housing Prices
The ECB’s monetary policy is expected to have a profound impact on the housing market. Lower Euribor rates translate into cheaper mortgage payments for buyers, boosting demand for residential properties. This increased demand is projected to drive up housing prices, as potential homeowners take advantage of lower borrowing costs. As a result, the combination of affordable mortgages and high demand is poised to accelerate property price growth in Spain over the next two years.
Rising Housing Prices Expected Over the Next Two Years
Alongside the projected decline in the Euribor, CaixaBank Research reportedly expects housing prices in Spain to rise significantly over the next two years. The latest forecast shows a price increase of 4.4% to 5% for 2024, depending on the data source used, such as the Ministry of Housing or the National Statistics Institute (INE). This marks a notable revision from the earlier estimates of 2.7% to 3.5%.
Looking ahead to 2025, CaixaBank anticipates a further 2.8% increase in housing prices. This updated forecast reflects a shift in expectations, with housing price growth exceeding previous projections, driven by multiple economic factors, including lower borrowing costs and robust demand.
Factors Driving the Surge in Housing Prices
Several factors are contributing to this upward trend in housing prices. Firstly, the reduction in interest rates, specifically the Euribor, is making home financing more affordable, spurring greater demand in the housing market. Additionally, the overall economic outlook in Spain has improved, leading to increased consumer confidence and a higher propensity to invest in property.
Furthermore, population growth is playing a crucial role. With more households being formed, the demand for housing is naturally increasing. CaixaBank’s forecast accounts for this demographic shift, recognising that the pressure on housing supply will push prices higher, especially in high-demand areas.
Population Growth and Housing Shortage: Key Contributors to Price Rise
CaixaBank’s analysis points to population growth as a key driver of housing demand. According to the latest projections from the INE, Spain is expected to see the formation of 330,000 new households per year between 2024 and 2028. This figure is significantly higher than the previously forecasted 215,000 new households annually.
The demand for housing is further intensified by the growing gap between household formation and the available housing stock. With new household creation outpacing supply, the result is a housing shortage that will likely contribute to sustained price increases. The current housing inventory, coupled with limited new construction, is inadequate to meet the needs of the expanding population, creating an imbalance that favours price growth.
CaixaBank’s Revised Property Transaction Forecasts
CaixaBank Research has also updated its predictions regarding property transactions. For 2024, the bank expects around 564,000 housing transactions, an increase from the previously estimated 550,000. Looking further ahead to 2025, the volume of property sales is expected to rise slightly, with around 566,000 transactions anticipated, compared to the earlier forecast of 552,000.
This upward revision reflects the continued strong demand for housing, driven in part by lower interest rates and population growth. The increase in property transactions is a clear indicator of the vibrancy in Spain’s real estate market, as more buyers enter the market to take advantage of favourable conditions.
The Role of Housing Supply in Price Dynamics
While demand for housing continues to rise, the supply side of the market is facing significant constraints. CaixaBank Research notes that while the number of property transactions is set to increase, the available housing supply may not be sufficient to meet this heightened demand. This imbalance between demand and supply is likely to further contribute to the acceleration of housing prices.
Over the next two years, the bank predicts around 240,000 new building permits will be issued. However, this figure is substantially lower than the number of new households expected to form, estimated at over 600,000 during the same period. This shortfall in new housing will exacerbate the pressure on prices, particularly in regions where demand is strongest.
Construction Costs Remain a Persistent Challenge
In addition to housing supply constraints, CaixaBank Research has highlighted the ongoing issue of elevated construction costs, which continue to impact Spain’s real estate market. Since the COVID-19 pandemic, construction costs have remained approximately 30% higher than pre-pandemic levels, and there is little expectation that these costs will decrease in the near future.
The persistently high construction costs pose a significant challenge for developers, limiting their ability to deliver new housing at affordable prices. This constraint further exacerbates the already strained housing supply, pushing prices higher as developers pass these costs on to buyers.
Impact of High Construction Costs on Developers
The sustained increase in construction costs over the past few years has created a significant challenge for developers. Many are struggling to absorb these rising expenses, leading to a slowdown in new housing projects. As a result, the limited supply of new homes is further strained by these financial pressures. Developers are forced to pass on higher costs to buyers, which in turn contributes to higher overall housing prices.
This situation has left developers facing a delicate balance: managing costs while meeting the growing demand for housing. The challenge is especially acute in areas where demand is particularly high, creating intense competition among potential buyers.
Spain’s Economic Growth and Its Influence on the Housing Market
Spain’s broader economic recovery is also playing a role in the real estate market. CaixaBank Research notes that internal demand, particularly in the tourism sector, has been a key driver of economic growth. The country’s improving job market and rising household incomes are further boosting consumer confidence, which has had a positive effect on the housing market.
Tourism, as one of Spain’s strongest industries, continues to fuel economic activity. As tourism rebounds from pandemic-related disruptions, it supports employment and increases disposable income for many Spanish families, allowing more potential homebuyers to enter the market.
Revised GDP Growth Forecasts
Due to the robust performance of the economy in recent months, CaixaBank has revised its GDP growth forecast for Spain. Originally projected at 2.4% for 2024, the new estimate is expected to be at least 2.7%. This upward revision reflects the resilience of Spain’s economy, driven by stronger-than-expected internal demand and a positive outlook for the labor market.
The Role of ECB Monetary Policy in Future Housing Market Trends
The European Central Bank (ECB) will continue to play a pivotal role in shaping Spain’s housing market through its monetary policy decisions. CaixaBank expects further interest rate cuts throughout 2025, which will likely lower borrowing costs and make mortgage financing even more attractive.
CaixaBank predicts that the equilibrium for Eurozone interest rates will be between 2% and 2.25%, down from the current 3.5%. As the ECB continues to reduce rates, this will have a direct impact on the housing market, leading to higher demand, more transactions, and ultimately, sustained increases in property prices.
Long-Term Outlook for Spain’s Housing Market
Looking ahead, Spain’s housing market is expected to remain dynamic, driven by strong demand, population growth, and lower borrowing costs. While the market faces challenges related to limited housing supply and high construction costs, the overall outlook remains positive. With the Euribor projected to fall further, and the economy continuing to grow, the conditions for sustained price increases are firmly in place.
In summary, CaixaBank’s latest predictions highlight a thriving housing market, supported by favorable economic conditions and monetary policies. While some challenges persist, particularly with construction costs and supply shortages, the long-term outlook for Spain’s real estate sector remains robust, with prices set to rise steadily through 2025.
CaixaBank’s forecast for Spain’s real estate market presents a promising future for the housing sector, underpinned by falling Euribor rates, strong demand, and an improving economy. Despite the challenges posed by high construction costs and a shortage of new housing supply, the market is expected to see continued growth in both property transactions and housing prices over the next two years. As the European Central Bank continues to cut interest rates, the conditions for further expansion in Spain’s real estate market remain favourable.
