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How home prices will behave in 2020

January 25, 2020

After a rise of 5% in 2019, experts predict that in 2020, apartments will continue to become more expensive, but at a slower pace due to weak demand, which will slow down sales. Rents will increase by 5%.

After the turning point that has marked 2019, this year begins as the big question mark for the future of the residential sector. A dynamic decade of recovery in prices and sales is coming to an end, after the significant adjustments suffered due to the bursting of the bubble. After flats became more than 6% more expensive in 2017 and 2018, the data known so far suggest that the 2019 rise will be lower and will stop the trend of five years of consecutive increases. 2020, therefore, promises to be a determining factor in determining the profile of this new cycle in which the residential market is entering.

How home prices will behave in 2020
How home prices will behave in 2020

Given this dilemma, a panel of experts resolved that housing will continue to become more expensive, but at a slower pace, and that sales will continue to show strength, although at levels similar to those already seen in recent years. That is, sustained increases, but less dynamic.

How home prices will behave in 2020How home prices will behave in 2020

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After a planned increase of 5% for 2019, experts predict that in 2020 the apartments will become 3% more expensive, although the range will move from 2% to 5%, depending on the micro-markets. Madrid and Barcelona will cease to be a locomotive to experience flat growth or even falls, in the case of Barcelona, although they will continue to attract investment and maintain a dynamic rental market.

At the origin of this moderation is the weakness of demand. The entry into force of the new Mortgage Law, whose effects began to be seen in June, and the political and economic uncertainty have eroded demand confidence, so that no great leaps in the number of sales are expected. The effects of this paralysis began to be felt in 2019, with an accumulated drop of 3% in sales until October. The downward trend could continue this year, aggravated by wage restraint, slowdown and legal uncertainty for the new government.

Just as the new Mortgage Law has been an earthquake in recent months, any regulatory change could alter or aggravate this trend of slowdown in the sector. “Changing legislation always leads to legal uncertainty,” warns Ferran Font, director of Studies of pisos.com.

A question that, professionals warn, the new government that today crystallizes should be aware. The coalition agreement presented last week between PSOE and United We can talk about regulatory changes in housing, and more specifically in the rental market, such as allowing municipalities or communities “that consider it” can “regulate” the market to curb the “abusive increases” and additional obligations for large holders.

The problem, warn the experts, is not only that this new regulation comes at a time when the market was already self-regulating (the increases close to 10% seen in 2019 will slow to 6% in 2020, with possible falls in Barcelona and a fairly flat evolution in Madrid). In addition, opening the door to price controls “can be counterproductive, as it can reduce the supply of housing, price increases and generate an underground economy,” warns Beatriz Toribio, a real estate analyst. “Price regulation through constraints has been a fiasco in Paris and Berlin,” adds Font, while incentives, she explains, are working in Vienna or Sydney.

“What the market needs is to reduce legal uncertainties for property owners, zero tolerance for squatting and regulatory stability after years of changes in leasing and mortgage legislation. But the future government is proposing the opposite”.

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