Spain's housing market is experiencing one of its most dynamic periods, with the price of free-market housing surging by a remarkable 12.7% in the second quarter of 2025, according to the National Institute of Statistics (INE). This marks the largest annual increase since the first quarter of 2007 and the second-highest on record.
A Market Driven by Imbalance
Multiple sources and experts point to a fundamental imbalance between supply and demand as the primary driver of this trend. While demand remains robust, the supply of available homes has decreased significantly, with some reports indicating a 20% reduction in homes for sale over the last 12 months. This scarcity is a key factor pushing prices higher.
Key Drivers of the Price Surge:
Chronic Supply Shortages: Spain's construction sector has struggled to keep pace with demand. New housing completions are well below the number of new households being formed, creating a structural deficit of hundreds of thousands of homes. This is due to a combination of factors, including rising construction costs, labor shortages, and extensive bureaucratic processes for building permits.
Strong and Diverse Demand: Demand is coming from various sources, including domestic buyers and a surge in foreign investment. International buyers now account for over 20% of all property transactions nationwide, with some coastal regions seeing foreign buyer participation as high as 40-45%. This is driven by Spain's attractive lifestyle, climate, and perceived affordability relative to other European countries.
Favourable Lending Conditions: The European Central Bank's interest rate cuts throughout 2024 and early 2025 have made mortgages more attractive and increased buyer purchasing power. This has encouraged more people to enter the property market, further stimulating demand.
Regional and Property Type Disparities:
The price increases are widespread, with all autonomous communities showing double-digit annual rates. Hotspots for growth include Murcia, Aragon, La Rioja, Madrid, and the Valencian Community. The price of used homes has seen a steeper rise (12.8%) compared to new homes (12.1%), although new builds are still highly sought after due to their energy efficiency and modern amenities.
Future Outlook and Market Forecasts:
While the market is hot, analysts are not calling it a speculative bubble like the one that preceded the 2008 crash. Instead, they see the current situation as a structural issue of high demand and limited supply. Forecasts for the coming years vary slightly but generally predict continued, albeit moderating, price growth.
Most experts agree that prices will continue to rise by 4% to 9% through the rest of 2025.
For 2026, growth is expected to moderate to around 3-5% as the market stabilises.
The long-term outlook suggests that structural factors like chronic undersupply and demographic trends will continue to exert upward pressure on prices for the foreseeable future.
The search for a home in Spain has become a challenge for many, as the market's strong performance, driven by a powerful mix of economic strength and limited housing stock, shows no signs of slowing down.