There are few questions that are more frequently asked than when is the best time to buy a house. Is now a good time or could house prices fall? And will interest rates fall in the near future?
Buying a home is one of the greatest aspirations of a large part of the population, as well as probably the most important financial decision of your life. To take this step, you need a stable financial situation, a high volume of savings to be able to make a down payment and also take advantage of a good time to start the mortgage application process .
To answer this question, there is nothing like analyzing whether now is a good time to buy a house.
What factors influence the real estate market?
The first two aspects mentioned have to do with your own personal situation, so we will leave it for the end because it is something that should be evaluated on a case-by-case basis. However, the real estate market and its state are the same for everyone. Therefore, it is important to understand the factors that influence the evolution of prices in order to know when is the right time to access a home.
There are several points to check here:
- The first of all has to do with the trend in housing prices . However, factors such as the country's economic situation and the state of housing supply and demand play a role here.
- In addition to the prices themselves, you also have to take into account the financing itself. That is, the cost of mortgages. Understanding how interest rates influence and when is the best time to apply for a mortgage and what type is essential to have a cheaper monthly payment.
So, whether now or in a few years, to know if it is a good time to buy a house, you need to analyze the evolution of prices, the supply and demand for housing, the country's economy and the state of interest rates.
What is the current situation of the real estate market?
To understand the current state of the real estate market, it is necessary to review the growth in prices over the last few years, the volume of home sales over the last twelve months and the state of supply and demand.
Compared to a year ago, the average price per square metre in Spain has risen by 7.2%. In the last five years, since 2019, the price increase has been more than 21%, going from 1,692 euros per square metre to 2,056, according to Idealista. In other words, the trend is upward and is close to reaching its historical maximum recorded in 2007, when the price reached over 2,100 euros.
This time, however, everything indicates that prices are far from being a bubble, as they seem to be driven more by the lack of housing – supply – and the increase in demand.
On the supply side, there have been setbacks over the last four years, as reported by the Bank of Spain . In fact, the volume of supply is at levels of 2016, when demand was much lower than it is today. On the other hand, permits for new construction fell by 1% in 2023 and are still very far from not only the pre-crisis years, but also from the 1990s itself. In fact, construction is currently at a rate of 100,000 homes per year, while in the 1990s the rate was over 300,000.
In this sense, According to Atlas RE Analytics and Gesvalt , Spain would need one million affordable homes to meet demand.
On the demand side, home sales, according to the INE, have been growing since the end of 2013. Although, only in 2022 were levels seen in 2007 recorded. It should be noted that, in 2023, for the first time, there has been a decline in sales, returning to levels of 2018-2017. Although, experts explain that this decline seems to be caused by the increase in interest rates.
What could happen to housing prices?
Given the above data, we see a sustained decline in supply, a slower pace of construction and strong demand, although there have been notable falls in the last year. According to El Periódico de España , Tinsa estimates a 1.4% increase in the price of housing in nominal terms for 2024. This increase will be lower than inflation, which would translate into a decrease in prices in real terms.
Only new-build housing would see a real increase in price.
Fotocasa does not foresee significant price drops, although there will be communities with less demand and tourist attraction where the drop may be more pronounced.
The least optimistic forecasts are from the firm UVE Valoraciones, which estimates that the market could fall by up to 3% and points out that this decline will vary greatly depending on the geographical area and neighbourhood in large cities.
In this situation, what is likely to happen in the coming months is either slight increases or decreases, but not major price drops due to the lack of supply and strong demand that support the market.
How will mortgages and interest rates evolve?
While it seems that no major downward movements can be expected in the case of housing prices, a decrease in the price of mortgages can be seen compared to recent months.
The Euribor, which is the indicator that marks the price of mortgages in Spain, reached its peak in October and has begun to fall. In fact, the main analysts – Bankinter, Funcas or CaixaBank Research – expect the index to fall to 3% by the end of the year and to average between 3.44% and 3.04% for the year. In fact, since the end of last year, financial institutions have begun to cut their mortgages by offering them more affordable, especially those with a fixed rate.
For the coming months, the market consensus expects four interest rate cuts for the Eurozone. This could mean further declines in the Euribor and, therefore, cheaper mortgages compared to those seen a year ago.
In short, what can be said about whether it is a good time to buy a house or not, in terms of mortgages it seems that the scenario will become more and more favourable as the months go by and that, therefore, it will be better to apply for a mortgage at the end of this year or at the beginning of next year compared to the current time. As for prices, stability can be expected in the coming months.
Your own personal situation
Once you've seen what the real estate market is like, you also have to consider what your personal situation is like. The first thing you should keep in mind is that, in most cases, you will need to have 30% of the value of the property saved up in order to apply for a mortgage. So, if the answer is yes, it may be a good time to buy. If you don't have 30%, then you'll have to wait until you have it.
On the other hand, it is important to analyse the mortgage payment that you could have left, since it should not be more than 30% of your net income. That is, if you earn 1,000 euros net, the mortgage should be equal to or less than 300 euros.
Therefore, you must first ask yourself what kind of house you want, what its price is, how much you have saved or need to save, what net income you have and what mortgage payment you would have based on the savings you have contributed.
