Oil, electricity and gas through the roof, what will happen to the price of housing?

The war in Ukraine has been the final boost to the scenario of rising prices that existed before the conflict. In addition, this has blown up all the forecasts launched by the European Central Bank at the end of 2021.

The scenario now handled by the ECB shows a price increase of 5.1% this year, compared to the 3.7% forecast in December last year. On the worst scenario inflation could be 7.1%. In this context, in which oil, gas and electricity are approaching the feared breakout prices, and we are facing scenarios of shortages, with a general increase in the cost of materials, the question arises in the real estate sector: what will happen to the price of housing?

The experts consulted by this means agree that housing will become more expensive this year and the range of average increases is between 3% and 6% depending on how the war in Ukraine develops and how long the period of uncertainty lasts.

Last year Housing became more expensive on average in Spain by 2.9% due to the increase in buyer appetite and the lack of supply. This year decisive factors are added such as the armed conflict in Ukraine, as well as the inflation scenario and the rise in the cost of materials, which would affect more specifically the price of new construction.

The rise in price will be greater in new-build housing than in second-hand

With this context, Servihabitat believes that housing will rise on average this year by around 4%. Thus, in their latest report they point out that “the professionalization of the real estate sector after the previous crisis, the active behavior of demand and the ease of access to credit are three of the factors that have led to the progress of the sector, solid and healthy. In In 2022, a continuation of the upward trend in price is expected, with an advance of 4% and new housing (4.5%) above used housing (3.9%), “they specify.

Antonio de la Fuente, managing director of corporate finance and head of the residential business at Colliers, agrees that the largest increases will occur “in new-build homes.” “These really represent a small part of the market, compared to used housing, and there is precisely a lower supply of this product and a higher demand, which will cause a higher price.”

In addition to the differences between the type of product, Luis Corral, CEO of Foro Consultores Inmobiliarios, recalls that “We must start from the basis that Spain works at different speeds, depending on their economic activity and their migratory flows”. Therefore, the expert believes that “in large cities or important municipalities, which are the engine of the economy, and which have solid and solvent demand, the price trend is upward and it will continue, especially in new housing due to the lack of supply. And given the lack of new housing, the demand is for second-hand and the tension is transferred to this segment with the consequent rise in prices.”

For his part, Ferran Font, director of Estudios de Pisos.com, highlights that in the case of second-hand homes “moderate growth is expected, as with which we ended 2021” and he also believes that “by 2022 the demand will have a trend to concentrate on large capitals and therefore, it will be in these more dynamic markets where price increases may be somewhat higher”.

On the other hand, the expert points out that there are already known conditioning factors, such as the application of the Housing Law or the receipt of Next Generation funds, which may have an impact on this evolution.

What will happen to the rate hike?

“To this we must add the current geopolitical situation that, in addition to having an impact on inflation and the increase in rates, may result in a change in the ECB’s expansionary policy. On the other hand, it also proposes an increase in rates and this would have as a consequence the end of the very cheap mortgages that we have now and this could translate into a decrease in sales as a result of a decrease in the economic capacity of demand”, Font explains.

Cristina Arias (Tinsa): “Prices will moderate as interest rates rise”

In this sense, Cristina Arias, director of the Tinsa Studies Service, hopes that “prices will continue to rise in the coming months and that moderate as interest rates rise“. “The demand for use can be maintained in the coming months, given that rate hikes are expected and those who are considering buying a home can speed up their purchase decisions to ensure a low cost of financing,” explains Arias.

In the case of investment, he believes that “he could also continue to choose real estate as an asset while there is such high volatility in the markets. As rates rise, demand may moderate and, with it, tensions in prices”.

How will it affect the activity?

The real estate market has started the year with a certain boost as a result of the inertia of the previous one, where sales were activated after a general stoppage due to confinement, explains Juan Carlos Higueras, professor at EAE Business School.

According to the expert, during this year, trading operations will continue to increase (both new-build and second-hand), in addition to the unsatisfied and accumulated demand that still exists, because real estate is a good refuge asset to protect against inflation. On the other hand, the announcement by the ECB to withdraw the stimuli in advance and begin to raise rates will promote a new boost in the real estate market.