Lower interest rates are good news for the real estate market. It has been the sixth time the mortgage rate has been lowered in the last nine months, five consecutive. Rates have thus reached 2.5%, their lowest rate in more than two years. Supporting this, although more moderate, is the Euribor, which in March stood at around 2.43%, 1.28% lower than the same month last year.
Effects of falling interest rates on the real estate market
Falling interest rates are a stimulant for the real estate market. It is a market that has held up in a complex sociopolitical environment.
The most visible manifestation of the interest rate cuts is that banks have launched a trade war. The mortgages they offer include increasingly favourable terms for customers. Some banks deliver fixed-rate mortgages with nominal interest rates of 2.5% and variable-rate mortgages with a spread reaching 0.5% + Euribor.
All of this without forgetting the relief these lower interest rates provide for those who are to revise their mortgages. Based on Euribor's evolution, an average 25-year, €150,000 mortgage revised in March would drop by just over €100 per month.
A push for home purchases
Better mortgage conditions and easier financing have boosted demand for housing. So much so that the number of home sales has skyrocketed. According to data from the National Statistics Institute (INE), the number of home sales registered in 2024 increased by 37.7% compared to December 2023.
In this scenario, with falling interest rates, this is a good time to invest in a safe-haven asset, such as housing. Another factor contributing to this is the scarcity of housing supply, which has caused the annual rate of change in the Housing Price Index to rise to 11.3% in 2024, according to the INE (National Institute of Statistics and Census).
Real Estate Forecasts for 2025
There is some uncertainty regarding the decisions of the European Monetary Authority, which could affect the property market forecast in 2025. Everything indicates that the downward trend in interest rates and the moderation of the Euribor will continue in the coming months. However, we expect this decline to be more gradual, pending the evolution of growth and inflation forecasts in the Eurozone.
For now, the market remains in a sweet spot. It's a favourable scenario for those who had put off buying until better mortgage terms were available. It also favours those looking to invest in a home.
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