EDITING |
Although many of us thought that after COVID, the residential real estate market could be affected, with a moderate decline in housing prices; the return to the "new" normal in June 2020 and the use of savings accumulated by families during confinement for the purchase of housing also contributed to the good moment of the sector.
If at the beginning of 2022 low interest rates generated very favorable financial conditions for the purchase of homes through mortgage loans, especially fixed-rate ones, in recent months they have been affected by the Euribor, which has intensified its rise. The benchmark index had been negative for 6 years, but today we see a clear upward trend that will continue to increase in the coming months. If this continues, the Euribor could close around 3 percent in December, once the European Central Bank (ECB) raises rates for the last time this year. As the rate reaches a provisional average of 2.82% in November, being higher than the 2.629% in October, but above all, the -0.487% recorded in November 2021.
The rise of the Euribor in November, although more moderate, will increase mortgage payments by 2,900 Euros per year for a mortgage loan of 150,000 Euros. This figure is even higher in the case of mortgages for an amount of 300,000 euros. In this case, the payment would increase by an additional 486 euros per month, resulting in an annual balance of 5,832 euros more per year. Thus, the mortgagor would go from paying 1,064 euros to 1,550 euros.
Although a moderation is expected in the 2023 market, not a halt, due to changes in financing conditions, increased supply, and reduced household savings. There is no talk of a real estate bubble as occurred during the 2008 real estate crisis where there was over-indebtedness of families, finding ourselves with the difference that during COVID, family savings evolved to a total of 75 billion euros in the period 2020-2021.
The main factor of vulnerability, stemming from the macroeconomic effects of an interest rate hike in an uncertain inflation context and not from the financial position of families, will cause a moderation of the upward cycle but not an abrupt halt of the market. Thus, starting in 2023, mortgage rates will begin to incorporate the shift in monetary policy, which will reduce demand. This, along with the increase in supply, will cause a slowdown, with prices that could evolve in line with the disposable income of households, according to Funcas.
