Our Take

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Spain's real estate market is continuing to boom, with home prices forecast to increase by 9% in 2025. Unfortunately for locals, this 9% significantly outpaces household income growth. Caixabank Research revised previous projections upward due to this stronger-than-expected housing demand and a 13.7% year-on-year rise in property transactions during Q1. With over 673,000 home sales in the past year, the Spanish property market has now exceeded post-pandemic highs.

Looking ahead, housing price growth in Spain is expected to cool slightly to 5.7% in 2026, as the economy slows and tailwinds such as low interest rates, declining inflation, and foreign investment begin to ease. However, the primary issue continues to be the housing supply shortage. While new construction permits are on the rise, they still fall way short of meeting demand. This continued demand is driven by increased purchasing power, ECB rate cuts, and significant interest from foreign real estate investors.

Housing affordability in Spain is worsening, especially for young buyers and low-income families. Despite one-third of purchases being paid in cash and conservative mortgage lending practices, affordability metrics continue to worsen. Economists, however, do not anticipate a housing bubble like 2007, citing tighter credit standards. Experts argue that the top priority is increasing affordable housing stock in high-demand areas such as Madrid, Barcelona, and Valencia.

Boom in Second-Hand Housing Drives Prices and Competition

The Spanish real estate sector is being partly driven by a boom in second-hand housing. One reason for this is its greater availability, and since mid-2024, its price growth has surpassed new-builds. In Q1 2025 alone, resale home prices jumped 8.1% year-over-year, significantly outpacing Spain’s inflation rate.

In markets like Madrid and the Canary Islands, second-hand homes have become more expensive than new construction, with average prices exceeding €2,000 per square meter—a milestone last seen before the 2008 financial crisis. 

Although building permits increased (36,000 in Q1), the supply remains way short of housing demand. This supply-demand imbalance is pushing more buyers toward existing homes, intensifying competition. A significant share of buyers are buying in cash.

There is also a huge imbalance in the market driving prices up: 81% of participants are buyers, while only 12% are looking to sell. Many transactions involve high-net-worth individuals and real estate investors, rather than families seeking primary residences. While the situation has echoes of the early-2000s Spanish housing bubble, analysts note that tighter lending regulations and other government measures reduce the risk of a systemic crisis.

ECB Cuts Interest Rates Again but Signals the End of the Cycle is Near

The European Central Bank (ECB) cut rates for the eighth consecutive time dating back the summer of 2024. In the latest move they reduced rates by 25 basis points. The deposit rate now stands at 2%, the main refinancing rate at 2.15%, and the marginal lending facility at 2.4%. This move was expected, given sluggish EU economic growth, easing inflation pressures, and trade tensions—especially with the United States. Lower rates usually translates into greater demand for mortgages, which may further fuel the Spanish real estate market.

Although the ECB downgraded its inflation forecasts—projecting eurozone inflation at 2% in 2025, 1.6% in 2026, and 2% in 2027—it signaled that the rate-cutting cycle is nearing completion. In response the euro rose to $1.14.                                                            

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NO MORE SEASONAL LOOPHOLES FOR LANDLORDS

The government of Catalunya has closed the circle on rent regulation, passing sweeping restrictions on medium-term home rentals. Medium-term rentals are those of more than 30 days, but less than 12 months. Previous regulations have already capped prices on long-term rentals and prohibited new short-term (Airbnb, VRBO, etc.) licenses. The government believes these measures will slow the growth of rents in Barcelona and the surrounding area. I have my doubts, but I will get into that later.The DetailsSince rent controls went into effect on long-term rental contracts (five to seven years), landlords have shifted their focus towards unregulated medium-term rentals. According to Incasol, the organization that tracks rental statistics and holds rental deposits, there was a 45% increase in medium-term rental contracts in 2024. Clearly, there was a loophole in the system.The new laws divide medium-term rentals into different categories. The first are tourist and holiday rentals. This category will continue at free market prices (landlords can charge what they want). In contrast, the new regulated category will include people moving permanently to Catalunya, those coming for medical treatment, and those coming for educational purposes. Unlike the free market rentals, these rentals will be subject to the same conditions, restrictions, and rent controls as the long-term units. Documentation will be required on the part of renters to determine the proper category. This process may be intrusive and cumbersome,  but it is intended to protect renters.The Catalan government is phasing out short-term rentals. This is in addition to regulating the long and medium-term rental space. They have bought buildings to prevent them from passing to free market rents. All of this is in addition to the end of the Golden Visa program in Spain and other proposed taxes on foreign property buyers. The results of all of this regulation remain unclear. If history is a lesson, we will see less construction (because there are no profits to be had) and continued rising demand. There will also be a shift towards illegal rentals that aren’t registered, therefore depriving the government of revenue. There has already been a drop in registered contracts overall. Less maintenance will be done, because there isn’t as much revenue to do it. It seems a more balanced approach that protects the lower end of the market and leverages the top end to incentivize developers to build more affordable housing might be more effective. The government controls an asset, the real estate market, it can use that asset for the benefit of the people of Catalunya. They have chosen to shut the door completely. We will see if their plan works. In Other NewsRelief may be on the way in Madrid. The city has, according to the Global Property Handbook released by the real estate firm Barnes, become the most attractive luxury market in the world. Price increases have reflected this demand. However, new construction, centered around projects in the southeast of the city, are in line to bring 278,000 new units to market in the coming years. Given the 87,000 unit deficit Madrid has accumulated in the last four years, this will be a welcome relief.Elsewhere, the European central bank has continued to drop interest rates at the steepest pace since 2018. This is in response to global economic uncertainty. Rates closed the first quarter at 2.5%. This drop has fueled demand for mortgages. Further cuts are expected.Also, Catalunya has announced that it will double the tourist tax to a maximum of 16 euros per night. A quarter of that revenue will be earmarked for affordable housing. For further questions, please feel free to reach out to me at: josh@mansonadvisoryservices.com