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Spain’s housing market continued to record strong growth during the past year, with home prices, property sales and mortgage lending all moving higher. However, the Bank of Spain has stated that current market conditions do not pose the kind of financial stability risks seen during the country’s previous property boom. While housing demand remains robust, the country continues to face affordability challenges, a shortage of new homes and declining access to homeownership for younger residents. Policymakers have been urged to work together to expand housing supply and address an estimated deficit of 750,000 homes across the country.
Spain's housing market continued to expand at a strong pace during the past year, but the Bank of Spain has said the sector is not showing the financial vulnerabilities that were evident before the country's housing crash nearly two decades ago.
In its annual report released recently, the central bank said indicators that typically signal financial stability risks in the property market remained at contained levels despite continued growth in housing prices, sales activity and mortgage lending.
The assessment comes as Spain faces increasing pressure to balance the economic benefits of tourism with growing concerns about rising housing costs. High rents and property prices have become major issues in several cities and tourist destinations, prompting calls for policy action from both residents and housing advocates.
The Bank of Spain noted that affordability challenges and an insufficient supply of newly built homes are making it harder for many households to purchase property. These factors are also contributing to lower homeownership rates and delaying the ability of younger people to move out of their family homes.
To address the issue, the central bank called for coordinated efforts between the national government, regional administrations and local authorities to increase housing supply. It estimated that Spain currently faces a housing shortage of around 750,000 homes.
Despite strong price growth, the market remains below the levels reached during the property boom of the mid-2000s. After adjusting for inflation, housing prices increased by 9.7% during 2025. Even so, prices in the first quarter of the year remained 12.2% below the peak recorded in 2007, shortly before Spain’s real estate bubble collapsed and triggered a prolonged housing downturn.
Property transactions also remained strong. Home sales exceeded 750,000 units during 2025, approaching the volumes seen in 2008. However, the central bank pointed out that transaction levels are lower when measured against Spain’s larger population, which has grown in recent years due to immigration.
Mortgage activity also continued to recover. Around 52% of home purchases during 2025 were financed through mortgages, although this remains below the levels recorded during the previous housing boom. New mortgage lending rose by 27.5% during the year, reflecting improving borrowing conditions and stronger buyer demand.
The increase in lending has come as the Bank of Spain evaluates potential measures to limit certain types of mortgage credit in the future. The move reflects a precautionary approach aimed at ensuring lending standards remain prudent even as market activity strengthens.
Lower borrowing costs have been a key factor supporting demand. Interest rates have fallen by around 150 basis points since late 2023, helping improve mortgage affordability and stimulate lending activity. Fixed-rate mortgages continued to dominate the market, accounting for roughly 80% of all new home loans issued during the year.
Source Reuters
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