ECB: Spanish housing market 85% more overvalued than Europe's

ECB warns: Spanish housing is 85% more overvalued than Europe

The latest report from the European Central Bank has once again raised alarms about the Spanish real estate market. Its overvaluation indicator, which measures the deviation of prices from economic fundamentals, surpassed 20% in the fourth quarter of 2025—a level not seen since before the 2008 crisis. This figure is 85% higher than the Eurozone average, positioning Spain as one of the countries with the highest risk of correction.

The ECB data and its correct interpretation

It is important to clarify the headline. It is not that housing is overvalued by 85%; rather, the Spanish indicator is 85% above the European average. The series, broken down, shows a sustained escalation: 11.3% at the end of 2024, 14% in the first quarter of 2025, 16.8% in the second quarter, and now above 20% in the latest figures. The historical maximum for this series was reached in the third quarter of 2007, nearing 33%. In other words, the market is dangerously approaching pre-bubble levels.

Causes of the imbalance: supply, demand, and hoarding

The explanations are not unanimous. Some attribute it to lack of supply: the housing deficit is estimated at around 700,000 units, and with a population growth of 500,000 people per year, 100,000 new homes would be needed annually to maintain equilibrium. Others point to speculation and artificial financing: access to credit and the purchase of entire buildings by large holders distort the market, creating a protective effect on prices. The increase in demand from immigration is also mentioned, though it is debated whether this demand is effective or potential, given that many newcomers cannot afford to buy.

The construction paradox: more supply, same prices

An anecdote illustrates the complexity of the problem: in 2007, when Spain was building more homes than Italy, Germany, and France combined, prices soared equally. History repeats itself. Supply is not the only variable; financing, speculation, and public intervention play a decisive role. In fact, the market is rescued and sustained by public money, which invalidates the classic logic of supply and demand. Meanwhile, the average citizen sees their purchasing power eroded: wages do not grow at the pace of prices, and VAT on new homes and ITP (regional transfer tax) on second-hand properties further increase the cost of purchase. Rent is also not a refuge: tourist flats and the arrival of high-spending foreigners strain the market.

Proposed solutions: from IBI to Canadian prohibition

Proposals range from fiscal measures, such as increasing the IBI (municipal property tax) on second homes, to direct bans on purchases by non-resident foreigners, as has been done in Canada. The lack of protected rental housing is also criticized, which is almost nonexistent in Spain compared to other European countries. Some also point out that the market is intervened and rescued with public money, which invalidates the logic of supply and demand.

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The analysis reaches a standstill: whether building more is the solution or if, as seen in previous cycles, it only fuels speculation. The ECB has sounded the alarm, but the political response remains a battleground without consensus. The question hanging in the air is whether Spain is willing to repeat the mistake of 2008 or if this time there will be an orderly correction.