The housing market across Spain, including the Canary Islands, is set to remain "red hot" in 2025, with both property prices and rents continuing their upward trend. A surge in demand is expected to drive more than 666,000 property transactions, pushing prices up by over 12% compared to current levels.
According to projections from real estate portal pisos.com, housing demand will remain strong, buoyed by improved credit conditions and pent-up savings. The forecast predicts 666,792 transactions in 2025, an 8.2% increase from the 616,259 transactions expected in 2024, surpassing even the record-breaking levels seen in 2022.
Ferran Font, Director of Research at pisos.com, highlights that the easing of interest rates by the European Central Bank (ECB) will make mortgages more affordable, fuelling housing demand. This, combined with still-untapped household savings, is expected to further heat the market.
Price Projections for 2025
The insufficient supply of new properties relative to demand will exacerbate price pressures. Font notes that new developments are quickly oversubscribed, leaving many buyers on waiting lists. Consequently, property prices are projected to rise by 12.1% by the end of 2025, with rents increasing by 10.3%.
Tourist destinations such as the Canary Islands, Balearic Islands, and coastal areas like Málaga and Levante are expected to experience the sharpest increases. Major cities, including Madrid, Barcelona, and Valencia, will also see significant price hikes.
Struggles for First-Time Buyers
The market dynamics will particularly challenge younger buyers. The report indicates that most home purchases will be made by those over 50, while younger buyers will often need financial support from family or government-backed guarantees to enter the market.
Revival of the Mortgage Market
The mortgage market is expected to rebound in 2025. The number of mortgages granted is projected to rise by 14.5% to 486,758, up from the anticipated 425,218 in 2024. This follows a period in which a significant portion of home purchases were made without mortgages due to stricter credit conditions tied to higher interest rates.
The ECB’s recent rate cuts, reducing the main rate from a peak of 4% to 3.25% through a series of 0.25% reductions, have reinvigorated borrowing. This trend is anticipated to continue, with potential further rate cuts in 2025 leading to more favourable mortgage terms.
Risks and Implications
While lower interest rates are expected to stimulate the housing market, rising property prices will necessitate higher financing needs. Font warns of potential risks, emphasizing the need to monitor household financial burdens closely to avoid over-leveraging.
"If credit becomes more accessible, the appetite for buying will grow despite higher housing prices," Font explains. "However, households will need to carefully manage monthly financial commitments to mitigate risks."
With both property prices and rents on an upward trajectory, 2025 is shaping up to be a challenging year for those seeking housing, particularly in high-demand areas. Policymakers and industry stakeholders will need to balance market dynamics to ensure affordability and accessibility in the housing sector.
