Housing became cheaper in the final stretch of 2022, but that did not prevent houses from ending the year being more expensive than in 2021 due to the price surge in the first months of the year. According to the Housing Price Index, published this Friday by the National Institute of Statistics (INE), the amounts fell by 0.8% in the final stretch of the year compared to the previous quarter. This left the year-on-year growth in the fourth quarter (compared to the same period in 2021) at 5.5%, a rate lower than that of the previous quarters that is consistent with the progress of a real estate market that started 2022 exultant and experienced a very clear slowdown in the month of December after the cooling of the economy and the ECB rate hikes. However, the previous price increase is noticeable in the general average: 2022 was the second year, behind 2007, in which prices rose the most with an average increase of 7.4%. And from the point of view of the amounts, it was the third most expensive in the statistical series that began in 2007, also behind that year and 2008, when the real estate bubble at the beginning of the century burst.
The INE index is an indicator with a base of 100 that takes the year 2015 as a reference. In other words, it does not give house amounts in euros, but rather shows how prices rise or fall with respect to that year. In other words, the 141,675 average points in 2022 mean that housing was almost 42% more expensive than in 2015. In reality, houses have not stopped rising since they hit bottom in 2013 and housing, therefore, adds already new consecutive years of rising prices in Spain. The pandemic did not prevent the amounts from continuing to grow in 2020 and since the recovery gained strength, house prices have been accelerating.
But that trend was halted in the fourth quarter of last year. Between October and December 2022, housing stood at 142,666 points. This is a level similar to that of late 2008, when prices would begin a long downward path in line with the Great Recession. The current context looks very different so it remains to be seen whether the 0.8% quarterly decline will be short term turmoil or a more robust trend. In any case, it is an unusual movement, since since the market recovery gained consistency in 2015, Spain has only seen houses become cheaper on five occasions compared to the previous quarter. The last time was at the end of 2008 due to the influence of the pandemic. Now, the increase in mortgage prices and the slowdown in the market after more than a year of unleashed sales would be the reasons that explain it.
What seems increasingly clear, because it was already seen in previous quarters, is that the segment of new homes and that of second-hand homes have divorced. In the last three months of 2022, brand new properties became more expensive by 1.9% compared to the previous quarter (and 6.2% year-on-year). Meanwhile, used houses, which currently account for the vast majority of the market due to the lack of new construction, fell by 1.4% in the quarter, which cut its year-on-year growth to 5.3%.
This difference between market segments is also seen in the index values. New homes have long been above their all-time high and continue to rise. In the 2022 average they are close to 155 points, when the top in the previous bullish price cycle was 136 points in 2008. The second hand, on the other hand, was close to 140 points last year, when the 2007 average was over 166 points. This is explained by the differences between the current market and that of the bubble. If at the beginning of the century more than 800,000 houses were built in Spain in a year, in recent years the sector in Spain has reached around 100,000 houses, a figure that for experts is below the natural growth of the number of homes, which causes an evident imbalance between the supply and demand for brand new flats and makes it necessary to satisfy a part of that demand with second-hand houses.
By autonomous community, the quarterly drop in prices between October and December was quite widespread, but there were contrasts. In three territories (Navarra, the Canary Islands and Cantabria) prices rose, in five (Andalusia, the Valencian Community, Asturias, Galicia and Aragon) they fell but less than the average for all of Spain. And in the remaining seven, the houses became cheaper than average. If you look at the 2022 average, houses were more expensive than ever in Andalusia, something that also happened (for the second consecutive year) in the Balearic Islands. In Madrid, the indicator was very close to the peak of 2007, just one point below. The greatest variations occurred in Cantabria (9.7% price growth), the Balearic Islands (9.2%), the Canary Islands (9.1%) and Andalusia (8.9%).
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