S&P Experts Revise Real Estate Price Forecasts in Europe

Nominal housing prices recovered quickly in 2024 due to improved affordability, prompting S&P to revise their forecasts upward, as reported by Idealista here. Real estate prices in 11 European countries are expected to rise by nearly 3% annually on average.

The report highlights that these expectations are based on upcoming monetary policy easing and declining mortgage rates. The improvement in housing affordability is projected to be the primary driver of European real estate market recovery, particularly in Italy, the Netherlands, Ireland, and Spain. Additionally, weaker investment activity and limited housing supply are also expected to impact the market. Analysts believe that the demand recovery is currently fueled by:

Record-high employment in most European economies

Household income growth
Debt reduction
Population growth

Declining Mortgage Rates & Stricter Energy Efficiency Standards

S&P experts note that mortgage rates continued to decline through Q4 2024, while stricter energy efficiency regulations are stimulating new housing construction. These factors are expected to continue shaping the market for the next two years, driving further demand. However, recovery rates vary across different countries.

Italy

During the pandemic, Italy introduced the Superbonus program, offering tax incentives that led to a boom in construction and related sectors. However, this effect is now fading, leading to stabilization in demand and a rise in prices for existing housing. Household debt-to-income ratios have reached their lowest level in a decade, but a declining working-age population has mitigated labor shortages less effectively than in other countries.

Market Outlook

According to other forecasts, by 2025, the number of housing transactions in Italy is expected to increase by 8%, signaling market recovery. Analysts at Scenari Immobiliari predict that sales will rise from 720,000 in 2024 to 760,000 in 2025, which is 36% higher than in 2020.

The total value of real estate transactions is expected to exceed €140 billion in 2025.
Housing sector: Prices expected to grow by 4.3%.
Luxury hospitality sector: The highest growth (+13.3%) due to strong international demand.
Consulting firm Cushman & Wakefield forecasts that in Milan and Rome, property prices and rental rates will continue to rise amid limited supply and slowing construction.

Costs of Homeownership in Italy

Annual property maintenance: €3,000 (excluding taxes & utilities).
Renovation costs: For a 250 sqm building, at least €300,000, mostly for labor. Even minor renovations can be costly.
Property taxes (IMU): Vary by municipality and require financial planning.
Notary & agent fees: 1%–5% of the transaction value.
Rental Yields in Italy (Q1 2025)
According to Global Property Guide:

Rome – 7.55%
Milan – 5.44%
Florence – 7.35%
Turin – 8.34%
Palermo – 8.29%
Naples – 7.41%
Catania – 8.55%

Portugal

Construction permits in Portugal have reached 2009 levels, but the supply still fails to meet demand, especially in densely populated areas. The real estate market is benefiting from foreign demand, as noted in the S&P report.

Real Estate Prices & Market Trends

According to the National Institute of Statistics, in Q3 2024, property prices in Portugal rose by 9.8% YoY, marking the largest increase since late 2022.

Total transaction value: €9.05 billion (+28% YoY)
Number of transactions: 40,909 (+19.4% YoY)
Second-hand properties appreciated more than new ones.

Challenges & Government Measures

There is a chronic housing shortage, worsened by:

Wealthy foreigners benefiting from residency-by-investment programs & tax incentives.
Tourism boom, driving demand for short-term rentals & making housing unaffordable for locals.
These factors have triggered protests in Lisbon & other cities. In response:

Portugal removed real estate from its “Golden Visa” program in 2024.
Tax incentives for new residents were reduced to cool the market.
Rental Yields (2025)
Lisbon: 4.45% (Global Property Guide)
Portugal (avg.): 5.52% – 5.88% (Numbeo)

Spain

S&P analysts believe Spain’s strong labor market has boosted household incomes and housing affordability. Additionally, the mortgage debt ratio remains historically low.

However, other analysts warn that government policies to regulate the market more strictly could reduce foreign demand.

Concerns Over Foreign Influence on Housing Prices
Mass protests have occurred against foreign tourists renting at inflated prices and non-resident investors.

The Spanish government is considering:
Raising VAT on rental properties from 10% to 21%.
Introducing a 100% tax on foreign property buyers from non-EU countries.
Restricting property purchases by non-residents.

Expected Market Impact

These measures may reduce demand, especially in the luxury segment.
Popular regions like Costa del Sol, Barcelona, and Madrid could see slower price growth.
Investment attractiveness may decline due to uncertainty in regulations.

Rental Yields (2025)

Madrid – 5.49% (Global Property Guide)
Spain (avg.) – 5.27% – 6.31% (Numbeo)

Other European Markets

Netherlands: Mortgage interest deductions and tax exemptions for first-time buyers stimulated demand.
Ireland: Market remains unique due to low housing supply, high immigration, and strong labor market.
Long-Term Price Trends (2019-2024)
Average home prices in Europe rose by 25% (despite a short correction in 2022-2023).
Inflation (2019-2024): 20%.
Household income growth: 24%.

Affordability & Economic Risks

Housing affordability has increased in France, Germany, Italy, and Sweden, with price-to-income ratios about 5% lower than pre-pandemic levels.
Geopolitical tensions, U.S. economic policies, and potential trade disputes could negatively impact the European economy.
S&P analysts expect labor markets to remain strong and central banks to continue lowering interest rates, which should support further price growth.