Spain | Why are home sales falling?

Data released this week suggests that home sales will fall by around 7.3% in 2026, after growing 12.2% in 2024 and 4.8% in 2025.[1] This reversal has raised concerns that it may be due to weakening demand. Although rising prices are reducing affordability, evidence suggests that the main cause is a lack of supply.

Between January and May, sales fell 8.4% year-over-year. Even so, over the last twelve months they approached 730,000 units, a level not seen since 2007, meaning part of the adjustment could reflect a normalization of activity. In any case, the concern stems from the evolution of prices, which rose 13.9% in the first quarter and which, relative to household income, are at levels comparable to 2004, though still below 2007. According to empirical evidence, rising home prices alone would explain between 30% and 70% of the drop in transactions.

However, this calculation does not consider that most of the factors supporting demand continue to improve. According to figures released this week, some 540,000 jobs could be created this year, a figure similar to 2025, while several wage indicators suggest that compensation per worker will increase by between 3.5% and 4%. Both factors would allow gross disposable household income to grow about two percentage points above inflation.

The population also continues to grow thanks to immigration. The influx of people from other countries is expected to remain around 600,000, in line with 2025. Along with improved disposable income, this explains why new household creation will remain close to 220,000 this year. Spain also remains attractive for purchasing second homes, especially following the increase in geopolitical uncertainty in the Middle East affecting the Eastern Mediterranean. Finally, financing costs remain at historically low levels, especially in real terms.

All of the above, combined with the momentum that home sales had been showing, should have more than offset the negative effect of prices on demand. However, sales are falling. And they are doing so, above all, in regions such as Madrid, the Valencian Community, and the Canary Islands, where many of the aforementioned factors are even more favorable for demand.

Therefore, the factor that seems to best explain the recent drop in transactions is a lack of supply. Although new construction permits are growing at double-digit rates, they are still doing so at an insufficient pace—with forecasts of 150,000 in 2026 and 170,000 in 2027—to offset the previously mentioned household creation. Consequently, the accumulated imbalance in the housing market continues to grow. Meanwhile, the supply of properties that had exited the rental market to avoid price controls and regulatory uncertainty appears to be drying up. Finally, there could also be owners delaying their sales in anticipation of higher prices.

Looking ahead, the increase in permits that began in 2024 could gradually translate into greater supply, albeit from low levels. Additionally, the sale of existing homes could be sustained if legal uncertainty in the rental market persists. Lastly, worsening affordability would cause price increases to moderate, which could incentivize owners to close deals.

Although negative scenarios for demand stemming from global geopolitical uncertainty, higher inflation, or higher interest rates should not be ruled out, in a context like the current one, tension in the real estate market will persist. It will continue to reflect the consequences of insufficient supply, either by limiting the number of transactions or through higher prices, which will intensify the urgency of reaching a consensus to solve the problem.