Spain’s Housing Market Rebounds to Pre-Crisis Levels

In 2017 the number of homes sold or purchased in Spain reached its highest level since 2008. As the collapse of housing sector was at the heart of Spain’s financial crisis, these data suggest a positive outlook for the Spanish economy.

The number of property sales in Spain reached approximately 465,000 in last year, representing a 15% increase from 2016. This is the highest annual figure the Spanish real estate market has seen since the financial crisis began in 2008. Based on the number of transactions, it now appears that Spain’s housing market has returned to pre-crisis levels.

Housing statistics provide important insight into the overall health of a country’s economy. Unlike GDP figures, which are lagging indicators and often subject to revisions, housing data act as leading indicators. This means they provide clues as to where the economy is heading. Thus, the increase in both the number and value of property sales suggests the Spanish economy is likely to continue to expand.

Spain’s housing sector was dealt a harsh blow during the financial crisis, making these statistics all the more remarkable. From 1996 to 2007, housing prices climbed by 197%, considered by many to be a housing bubble. However, the collapse of the Spanish property market from 2007 through to 2015 resulted in prices falling nearly 42%.

Prior to the financial crisis, the housing sector was an important source of economic growth. In 2007, investment in the industry amounted to around 7.5% of GDP. Furthermore, the construction industry was a key source of employment. The recovery of the Spanish property market is therefore a key part of Spain’s economic renewal.

The performance of Spain’s housing market is particularly impressive when contrasted with that of its neighbours. In the last three months of 2017, Spain’s housing prices jumped more than 7%, compared to the same period in 2016. This is a leap in comparison to the figures of France, Cyprus, and Malta. In Italy, housing prices actually contracted by 0.3%.

Despite the increase in sales, the Spanish housing market remains around half the size it was in terms of volume before 2007. This is due to the fact that the Spanish construction industry was over-stimulated in the 2000s and builders were trying to throw together homes as fast as possible to meet soaring demand. This time around, while demand is rising once again, construction firms are focused more on building fewer homes with higher quality of construction. Copyright: Dino Giromella/

What accounts for the relative strength of Spain’s housing market? The economic growth was strong in 2017, outpacing Italy, France and the eurozone average growth rates. Particularly noteworthy for Spain, the country’s unemployment numbers are at a nine-year low and are expected to fall further by the end of this year.  The fact that the European Central Bank (ECB) has kept interest rates low has also reduced the costs of mortgages. Taken together, these developments have helped refuel the demand for property in Spain.

However, not everyone is saying “home sweet home” just yet. There are some areas of vulnerably in the Spanish property market that could dampen its future growth prospects. To start with, 13% of all homes sold in 2017 were purchased by foreigners. While this in and of itself is not a sign for worry, British citizens happen to make up the largest proportion of foreign purchasers in Spain. Thus, the impending impact of Brexit, a rise in inflation, and a weaker pound could reduce demand from Spain’s biggest group of real estate consumers.

While the number of sales has been steadily increasing, Spain suffers from a persistent housing supply glut. This suggests there is still a large amount of unwanted property on the market which could constrain housing prices.

Additionally, the Spanish property market has historically been highly sensitive to interest rate changes. It is expected that interest rates will begin to rise as the ECB winds down its bond-buying program. This would make mortgages more expensive and reduce the number of Spaniards willing or able to invest in property.

Nevertheless, it’s highly unlikely that the Spanish housing market will contract, let alone experience another crash anytime soon. More mortgages are now based on fixed rates, making them less exposed to a shift in ECB monetary policy. The Bank of Spain has also tightened mortgage lending conditions, which will help make the housing sector more stable.  Moreover, foreclosures fell by more than one-third last year, indicating that Spanish homeowners are in an increasingly stable financial situation.

It’s expected that Spanish property prices will rise by an additional 6.1% in 2018. While demand is forecasted to be highest in Madrid and along the coastline, every one of Spain’s autonomous regions will see the value of their housing markets increase. All things considered, it appears that the health of Spain’s real estate market is yet another sign that the country has emerged from the financial crisis with a stronger, more stable economic outlook.

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Katrina Pirner

Katrina is a Berlin-based freelance writer who focuses on economics, disruptive technology and politics. She’s previously worked in Canada, Italy, Belgium, and the US. Katrina holds a MA in International Relations from Johns Hopkins University where she concentrated in European political economy.

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