Expert Property Insights: Navigating Spain's Robust Real Estate Expansion Phase

As a leading expert in the Spanish property investment sector, I can confirm that Spain’s housing market has firmly entered a new expansionary phase. This current market momentum is robust, fuelled by a favourable trifecta of lower interest rates, improved purchasing power, and sustained population growth. While the dynamism of sales and price acceleration is undeniable, understanding the underlying differences from previous cycles is crucial for any potential buyer or investor navigating this rapidly evolving landscape.

The Engines of Demand: Sales Surge and International Interest

The speed at which demand has revived since mid-2024 is remarkable, placing transaction levels on par with those last seen in 2007. In the trailing 12 months leading up to June 2025, approximately 700,000 sales were closed, representing a 19.7% increase compared to the first half of the previous year.

However, the sheer volume of transactions must be viewed against current demographic realities. The demographic pressure today is far greater than during the pre-2007 boom; Spain now has 4.3 million more people and 3.2 million more households than it did in 2007. Despite this high transaction volume, the sales per 1,000 inhabitants (14.3) remain well below the 2007 peak of 17.3.

While Spanish citizens drive the primary demand, the influence of foreign buyers Spain is a critical factor and certainly not negligible. Foreign purchasers acquired approximately 50,000 homes in the first half of 2025, according to the Association of Property Registrars. This cohort now accounts for 14.1% of all sales, significantly higher than the historical average of 10.5% observed between 2006 and 2024. Sales to foreign buyers saw a 15% increase compared to the same period the previous year.

Number of sales per 1,000 inhabitants

Note: (*) Trailing 12 months to June 2025.Source: CaixaBank, based on data from the Spanish National Statistics Institute (INE).

The Critical Constraint: Spain's Housing Deficit

If demand is surging, the primary friction point in the market is the critically insufficient supply. The housing deficit Spain is central to explaining the current pressure on prices.

Although the supply of new housing is gradually gaining traction, it has not yet managed to compensate for the significant deficit accumulated since 2021. In the trailing 12 months up to May, around 132,000 new homes were approved, marking a 13% year-on-year increase, following a 17% increase registered in 2024. This trajectory of steady growth is expected to continue, given the robust demand.

However, this increased supply remains wholly insufficient to meet demand and close the accumulated deficit, which now exceeds 500,000 homes since 2021. While new construction permits are rising, the current figures are a far cry from the 2007 boom when 42.1% of sales involved new homes.

The construction sector supporting this supply effort is also undergoing a structural shift. The labour market within construction is demonstrating a gradual, modest improvement, outpacing the average employment growth for the economy as a whole. Crucially, the sector has seen a drastic reduction in temporary employment since the 2021 labour reform. Temporary contracts have plummeted from around 35% in 2022 to just 4.8% in 2025, demonstrating a clear commitment to job stability and an increase in full-time permanent contracts (from 63% to 85.6% of the total).

Number of new construction permits

Notes: (*) Data on new construction permits for the trailing 12 months to May 2025. Net household creation data come from linking the series from the Labour Force Survey (LFS), the Continuous Household Survey (CHS) and the Continuous Population Survey (CPS).Source: CaixaBank Research, based on data from the Spanish National Statistics Institute (INE).

Price Acceleration and Growing Affordability Stress

Unsurprisingly, the persistent supply-demand imbalance is leading to house price acceleration. According to key national indicators, the growth intensified in early 2025. The price index published by the National Statistics Institute (INE), based on transaction prices, showed a sharp annual growth rate of 12.2% in Q1 2025.

In nominal terms, the price of housing now surpasses the peaks registered in 2007. While these increases have occurred within an inflationary context—and in real terms, prices generally haven't reached previous highs—the impact on affordability is substantial.

The pressure is not uniform across the country. We observe a mixed regional pattern:

• High Demand Areas: Economically dynamic regions like Madrid and Catalonia show sharp price increases due to high demand and land pressure.
• International Appeal: Andalusia, the island regions (such as the Balearic Islands), the Community of Valencia, and Murcia stand out as highly attractive areas for international buyers and tourists.
• Lower Growth Areas: Regions with less housing pressure and an older population, such as Aragón, Castilla-La Mancha, and Extremadura, have recorded lower house price growth.

Price pressures are even more acute in the rental market pressures Spain, where the lack of available units is severely felt. CaixaBank’s average rental price indicator has risen by 5.5% in the first half of 2025, accumulating a staggering 30% increase since 2019.

Monitoring Overvaluation: A Cautious Note

After several quarters of sharp price increases, some indicators are beginning to suggest possible overvaluation Spain in the property market. The Bank of Spain estimated that, by the end of 2024, housing prices were between 1.1% and 8.5% above their long-term equilibrium level. Similarly, the European Central Bank (ECB) estimates an overvaluation of Spain’s residential market of around 10% by the close of 2024.

While these levels are currently contained, the trend is clearly upward. Furthermore, analysis of affordability ratios indicates that house prices are gradually decoupling from household income trends in most regions, with the Balearic Islands and Madrid showing the most significant tension.

ECB residential property price indicator

Deviation from the long-term average (%)

Source: CaixaBank Research, based on data from the ECB.

Avoiding the Mistakes of the Past: Financial Resilience

The current rally might conjure fears of a sharp correction akin to the one experienced between 2008 and 2013. However, the current environment presents crucial structural differences compared to the previous cycle:

1. Supply vs. Deficit: The most significant difference is the absence of the gross oversupply that characterised the 2000s. Today, we face a substantial housing deficit.
2. Financial System Strength: The financial sector is far less exposed. Credit to the developer and construction sector stands at roughly 5% of GDP, which is a fraction of the over 40% ratios registered in the late 2000s.
3. Household Debt and Mortgages: Mortgage credit to households is dramatically lower at 30.6% of GDP, compared to 63.6% in 2006. Furthermore, household debt overall is significantly lower (42.5% of GDP now versus over 80% in 2010).
4. Lending Standards: Crucially, there is no evidence of relaxed mortgage lending standards. A key behavioural change is the widespread adoption of fixed-rate mortgages, which account for over 50% of all mortgages granted since 2022, compared to just 2% during the 2000s boom.

Outlook for Spanish Real Estate: 2025 and Beyond

The fundamental imbalance between supply and demand is expected to persist. While construction activity will continue its gradual increase (forecasts anticipate 140,000 new construction permits for 2025 and 150,000 for 2026), this will not be enough to meet the demand generated by new household creation (around 180,000 per year) and continued net purchases by non-residents (around 50,000 per year).

Therefore, the housing deficit will continue to widen, albeit at a potentially slower rate. This structural pressure is the main reason why forecasts anticipate continued strong price growth: Spain house prices are expected to grow by approximately 10% in 2025 and 6.3% in 2026.

This expected growth, outpacing disposable income, further heightens the strain on affordability, particularly in high-demand urban and coastal areas. This underscores the critical, ongoing necessity to accelerate the construction of affordable housing Spain.

Frequently Asked Questions

• What are the main factors driving the current expansion in Spain’s housing market? The current boom is driven primarily by lower interest rates, an improvement in purchasing power, and sustained population growth. Additionally, high demand from foreign buyers is playing a notable role.
• Is Spain’s current property market similar to the bubble seen before 2007? No, the current context differs fundamentally. The primary difference is the existence of a serious housing deficit Spain today, whereas the pre-2007 market suffered from substantial oversupply. Furthermore, households and the financial sector are in a much stronger financial position, and mortgage lending standards are tighter, with fixed-rate mortgages now common.
• How significant are foreign buyers in the Spanish real estate sector? Foreign buyers are highly significant. In the first half of 2025 (S1 2025), foreigners accounted for 14.1% of all home sales, which is notably above the historical average of 10.5%.
• Are house prices currently exceeding historical peaks? Yes, according to the main national indicators, house prices now exceed the peaks registered in 2007 in nominal terms. However, in real terms (adjusted for inflation), prices have generally not yet reached those previous highs, except for new homes.
• What is the outlook for house price growth in Spain for 2025 and 2026? CaixaBank Research forecasts anticipate robust growth in Spain house prices due to persistent supply-demand imbalance, projecting approximately 10% growth in 2025 and 6.3% growth in 2026.