Spain's housing 'miracle' defies the ECB: prolonged stagflation or a black swan ahead?

Tighter credit has made mortgages more expensive and cooled home sales, but housing prices in Spain keep rising because supply is scarce and foreign and investment demand keeps the market afloat. There is no collapse in sight over the next two or three years, although the combination of high rates and persistent inflation leaves a real risk of prolonged stagnation.

Theory says that when money becomes more expensive, asset prices crash. In Spain, the Euribor has driven up variable-rate mortgages and cut the number of new home-purchase loans, but housing prices refuse to give in. The Spanish property market has been defying that logic since **2022**: less credit, fewer sales and, all the same, prices that hold steady or climb.

## Credit gets more expensive, but prices won't budge

The European Central Bank raised rates aggressively between **July 2022** and **September 2023**, taking the deposit facility to **4%**. That made mortgages more expensive and reduced the number of transactions. Home sales fell sharply in **2023** and much of **2024**.

Yet the average price did not trinc the same path. The main reason is supply: Spain builds far fewer homes than its population demands. The stock of new construction is small and building permits are not recovering to the levels of the **2007** bubble.

## Demand that doesn't depend on the Euribor

There are buyers who don't need a mortgage, or only a small one. Foreign capital buys property in coastal areas and major cities, often in cash. Institutional investors and individuals with accumulated savings also prop up demand.

On top of that comes inflation. When consumer prices rise, money loses value and real assets, such as property, become a safe haven. It's not that homes are worth more in real terms; it's that the euro is worth less. That's the part of the "fiat money debasement" argument that makes sense.

## Property stagflation: the most likely scenario

Over the next two or three years, the central scenario is neither a crash like **2008** nor an Argentina-style collapse of the economy. It's property stagflation: high or flat prices, weak activity, rates falling slowly and wages that don't keep up.

The risk of a black swan exists, but it doesn't come from home prices. It comes from a recession that destroys jobs and forces mass sales. As long as unemployment doesn't spike, property holds up. That said, buying a home today with a variable-rate mortgage is a decision best discussed with a financial adviser.