Spain housing prices drop 4.6%, sales plunge 18.4%

Housing prices fall 4.6%, yet sales drop 18.4%

Does a price drop actually encourage buyers? Data from Spain's General Council of Notaries for July, published on September 14, 2023, says no. The average price per square meter fell 4.6% year-on-year to €1,617, accelerating from a 2.6% decline the previous month. Meanwhile, property sales plummeted 18.4% and mortgage signings dropped 25.7%. Cheaper homes are not reviving demand; they are sliding down with it.

Why do sales fall even as prices drop?

The downturn is widespread. Of the 57,255 transactions recorded in July, 43,751 were apartments—a 18.6% annual decrease—and 13,505 were single-family homes, down 18%. Prices trinc the same trend at different speeds: apartments fell 3.3% to €1,821 per square meter, while detached houses dropped 7% to €1,271.

Credit constraints explain much of the slowdown. Mortgages fell 25.7% to 26,280 operations, with the average loan amount decreasing 12% to €148,201. Only 45.9% of purchases were financed by a mortgage, where banks covered an average of 70.2% of the price. With Euribor rates high, monthly payments weigh more than before, meaning cash buyers are holding up the market.

Those who have waited years for a correction argue this is just the beginning: high energy costs, declining demographics, and elevated interest rates. The counterargument is simpler and uncomfortable: construction has stalled, supply is scarce, and available land is missing. Both can be true simultaneously, and indeed they are.

Which regions see rising housing prices?

The national average masks two distinct realities. Six regions recorded increases: Balearic Islands (+18.7%), Basque Country (+7.1%), Valencian Community (+4.9%), Navarre (+3%), La Rioja (+1%), and Catalonia (+0.4%). At the other end, Castile and León (-13%), Extremadura (-9.5%), Aragon (-9%), Galicia (-6.6%), Asturias (-6.2%), and Madrid (-3.8%) led the declines.

The Balearic case deserves special attention. Prices rise there even as foreign demand collapses: international buyer activity in the islands fell 28%. Higher prices, fewer buyers. Someone must explain how this equation holds long-term without breaking.

Euribor, supply issues, and room rentals

Some analysts argue the problem is supply, not demand: in Barcelona, builders face two-year backlogs and labor shortages, with little new stock emerging in tight markets. Opposing views point to money costs: pricier mortgages push stressed owners toward renting, fueling the trend of renting out rooms in one’s own home to offset higher payments. Shared apartment listings grew 34%, according to sector data.

Others note that price adjustments aren't uniform. A home bought for €120,000 in 2012 might list today around €225,000, settling near €210,000 after negotiation. That 15% discount isn't a gift to buyers but a correction of prior gains. This nuance, absent from the 4.6% annual figure, explains why official stats and street-level sentiment diverge.

Rental market scrutiny: cash, law, and fraud

The rental framework is tightening on multiple fronts. Housing regulations move toward controlling seasonal and tourist rentals, and since May 2023, accepting rent in cash falls under incivil liability. Tax authorities (Hacienda) have uncovered €7.1 billion in undeclared rental income over six years, sending notices to taxpayers since the 2015 tax campaign.

Practically, there is less room to collect rent untraceably. For owners previously underreporting, reforms arrive at a bad time. It remains to be seen if this pressure releases housing into the market or hides it further.

Is Vienna the model for affordable rents?

Vienna is often cited, where nearly 60% of residents live in capped-rent apartments. Few mention that this stock was built by the municipality over a century, involves long waiting lists, and cannot be replicated quickly. In free markets, private rent caps tend to make housing disappear from listings. The proposed alternative—building dignified affordable neighborhoods with transport and services—clashes with public budgets and timelines.

While these debates continue, July’s data is stubborn: fewer transactions, fewer mortgages, and sliding prices. The square meter sits at €1,617. Some may call it a unique opportunity. So far, the numbers disagree.