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Despite the worsening economic situation there is a marked upward trend in the real estate sector with very strong demand and a notable rise in prices. For its part, the supply of new housing is being affected by the war in Ukraine as this has pushed up construction costs even further and aggravated the material supply problems due to bottlenecks in global value chains. Consequently, the misalignment between the demand and supply of housing has intensified, with the result that house prices are likely to continue rising. However, there are several counteracting factors that should help to curb the growth in demand and prices over the medium term, including the impact of inflation on real household income and the ECB’s interest rate hikes.

Construction costs in Spain have increased considerably since January 2021, a rise that was prompted by the strong recovery in global demand as the economy reopened after the pandemic but was further aggravated by the outbreak of war in Ukraine. In recent months, however, the price of industrial metals on international markets has fallen sharply and the futures markets point to prices stabilising to some extent. Given this situation, the cost of construction materials in Spain is expected to moderate in 2023.

Activity in the real estate market is recovering from the extraordinary slump experienced during the strictest months of lockdown. House sales picked up notably in the first few months of 2021 while new building permits continue to recover gradually. On the other hand, house prices have accentuated their downward trend observed since mid-2018. Nevertheless, their performance was surprisingly resilient during the pandemic, particularly the prices for new builds, and we expect house prices to continue posting moderate but steady gains in the coming quarters.

The tightening of financial conditions between 2022 and 2023 truncated the rally in home prices in the vast majority of residential markets of the major advanced economies. Despite significant differences between countries, overall home prices have withstood the tightening of financial conditions relatively well, taking into account the speed and intensity of the interest rate hikes. This better-than-expected resilience not only shows the strength of the demand for housing, but also reveals the scarcity of supply at this point in the cycle. Regulatory restrictions to increasing supply and a lack of public investment in the vast majority of OECD countries will be exacerbating the housing affordability problems in markets that are experiencing higher demand, such as large cities.

The health crisis caused by COVID-19 has represented an unprecedented shock for Spain's tourism sector. Demand indicators confirm that the stoppage during the months of lockdown was total, both for international and domestic tourism. The end of the state of emergency and the recovery in international mobility within the EU have helped to revive flows of tourists to Spain. The outlook for the coming months points to a relatively rapid upturn in domestic tourism with a more gradual recovery for international tourist flows, although the delicate situation of the pandemic will still be a major source of uncertainty.

Spain’s real estate market is slowing down but at a more moderate pace than predicted in the scenario published in last December’s Real Estate Sector Report.

Between 2018 and 2024, the Spanish economy experienced a substantial improvement in its relative electricity and gas prices, going from paying more than the European average to benefiting from lower rates. This decline is a result of the significant growth of solar photovoltaic and onshore wind power, the two forms of electricity generation with the lowest cost. Lower electricity prices compared to European competitors have facilitated the manufacturing sector’s good performance in recent years. This advantage in the generation of sustainable and low-cost electricity gives Spain’s industry a competitive edge over its competitors. 

The slowdown in exports has been one of the main sources of weakness in the Spanish economy in recent quarters. Manufacturing is particularly dependent on sales abroad and has been the epicentre of the deterioration in exports of goods.

In 2021, a milestone was reached that was hard to imagine a year ago: the mass vaccination of a large part of the population in advanced countries. Although new waves of infection are occurring, in those countries where population vaccination levels are higher it is likely that activity and travel restrictions as severe as those that have set the pace of economic development since the outbreak of the pandemic will not have to be reimposed.

The shortage of housing supply in a context of strong demand will remain one of the main challenges of Spain’s real estate market in 2025, although it is not among the most overvalued markets in the European Union.  

Between 2020 and 2022, around 420,000 new households were created in Spain. During the same period, the number of new homes started barely reached 300,000, the lowest level since 1990 except during the financial crisis that began in 2008. This supply of housing, which is insufficient in relation to the demographic situation, is more pronounced in those municipalities whose populations are growing the most, such as large cities, the islands and the Mediterranean coastline. According to population projections by the National Statistics Institute, about 217,000 new households will be created per year over the next five years (2023-2027), representing significant demographic pressure and with important implications for the housing market.

The problem of housing affordability, both rental and ownership, has worsened in recent years and is particularly affecting certain groups such as young people. Solving this issue is no easy task and requires action to be taken on multiple fronts and over an extended time horizon. Public-private collaboration is essential for boosting the supply of affordable housing, and industrialised construction shows promise as a new way to help overcome the major challenges that the sector is facing, such as attracting skilled and female labour, while promoting more digital and sustainable construction methods.