At its last meeting in February, the ECB decided to raise interest rates again, and it will be the fifth in less than a year. In twelve months, the reference index for mortgages has gone from being negative to reaching 3%. And a rise in the Euribor in 2023 is not ruled out, along with more measures aimed at returning inflation to around 2%.
In fact, forecasts point to a new rise in the Euribor in 2023, reaching rates unknown since 2008. If in January 2022, it stood at -0.477, by the end of 2023, it could touch 4%.
In this situation, the logical consequence will be the cooling of the real estate market due to the slowdown in demand. However, we don't expect a scenario like the one in 2008.
How the rise in the Euribor in 2023 will affect the housing market
It is possible to measure the consequences in different scenarios. The first one has to do with mortgages. It will mean a significant increase in the monthly fee for those with variable-interest loans. Therefore, the demand for fixed-rate mortgages has increased, provoking a rise in their cost.
Besides, the rise in the price of money affects those who want to buy a home. The housing demand, which reached records in recent months, is starting to decline. The reasons are a foreseeable rise in Euribor this year, fewer savings capacity due to inflation and more difficulties in getting a mortgage.
In this scenario, there is another prospect: a reduction in real estate investment. Housing has always been considered a safe-haven asset. However, the rise in the price of money and the profitability of traditional financial products could change the intentions of small investors who, until now, focused their efforts on the real estate market.
Consequently, the result of the confluence of these factors would be a slowdown in the market, with falling demand that would drag down prices, albeit moderately. In any case, the situation depends on how inflation behaves and the decisions made by the European Central Bank regarding interest rates.
Repercussions on the rental market
The rise in Euribor in 2023 can also affect the rental market. More difficulties in accessing housing mean that demand will increase and, with it, also prices.
Another consequence: tenants who intended to buy could hold back until they see the economic evolution and interest rates. This situation would stress this market even more.
Given a forthcoming price adjustment, it is better to be prepared
A cooling in the real estate market and a price adjustment may represent an opportunity to buy a home. In this situation, it is possible to find convenient offers. Therefore, it is essential to have a good reaction capacity.
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