T
he Spanish real estate market is characterized by a mismatch between strong demand and scarce supply, leading to accelerating home prices, particularly for new-builds. Our initial forecast predicted an upward trend in 2024, but data has been more bullish than expected, prompting us to revise our forecasts upwards for 2024-2025.

    Housing demand remains robust, with sales stabilizing at around 578,000 between January and August 2024, a significant figure from a historical perspective. New home sales are growing rapidly (+7.7% year-on-year), while existing home sales decline (-3.1%). Sales to Spaniards buying primary residences grew the most (+8.6%), while foreign buyers showed moderate growth (1.3%).

    Looking ahead to 2025, we expect factors supporting housing demand to remain present: net job creation, wage growth above inflation, dynamic migration flows, strong foreign demand, and healthy household finances. The ECB's interest rate cuts will also ease financial conditions.

    The main imbalance in the market is the shortage of affordable housing supply. Between 2021 and 2023, some 777,000 new households were created, while only 273,000 homes were completed. Although the gap has narrowed, it remains wide, and factors limiting housing production include land shortages, labor shortages, high construction costs, and regulatory changes.

    Home prices in Spain have accelerated, rising by 7.1% year-on-year in the first half of 2024. New home prices grew the most (+10.7%), while existing home prices also increased rapidly (+6.5%). We expect this rally to continue in 2025, with nominal growth expected around 4%. However, high prices and affordability problems could limit demand and prices, generating adverse economic and social effects in the medium term.