Spanish wage growth trails inflation as housing market pricing excludes young buyers

This is one of the conclusions of the BBVA Research report 'Situación España', in which analysts warn that future interest rate rises will also have a significant impact on loans, making it more expensive and worsening the conditions for obtaining a mortgage.

At the same time, housing construction moves at an insufficient rate and investment in the property sector is below BBVA Research's forecasts. Between 2026 and 2027, between 130,000 and 140,000 properties will be on the market, well below the demand for 750,000 homes identified by the Bank of Spain.

While BBVA Research's demand figures are much lower than those of the Bank of Spain, standing at between 140,000 and 160,000, the estimated construction rate would still not be able to cover them.

"We expected the imbalance between supply and demand to result in increased spending (on housing)," Chief Economist for BBVA Spain Miguel Cardoso said at a press conference. However, this increase in investment has not materialised.

Consequently, house prices will continue rising, albeit at a more moderate pace, due to the rise in interest rates and the fact that the rising cost of living "is already leading to a slight decline" in property sales.

This year's rise, estimated at 11.5%, is set to slow to 5.5% in 2027. "Estimates of demand growth driven by the formation of new households suggest that house prices will rise above the CPI," Head of Economic Analysis at BBVA Research Rafael Doménech stated.

Future interest rate rises, which the markets have already priced in, will also have a significant impact on loans, tightening the conditions for obtaining a mortgage. Specifically, the bank believes that the inflationary crisis triggered by the war in Iran will erode household confidence and discourage business investment, which will ultimately slow economic growth.

Despite this, BBVA has raised its forecast from 2.4% to 2.6% for 2026 and kept its forecast for 2027 at 2.1%. This means that Spain will no longer grow at the robust rate it has been experiencing in recent years, although BBVA Research believes that this will bring growth in line with the average of the last three decades, at around 2%. For this reason, the bank says, it is "not a major cause for concern at present".

Regarding the energy shock and the resulting inflation, analysts do not foresee as significant a pass-through to food prices as occurred after the start of the war in Ukraine. "Food inflation has not yet contributed in the same way as we observed previously," Cardoso noted.

However, rising oil and gas prices will reduce GDP growth by between 0.4% and 0.5% and add between 0.8% and 0.9% to inflation in Spain until the end of 2027.

Accordingly, their forecasts point to inflation in Spain of 3.6% in 2026 and 3.2% in 2027. "The longer the rise in energy costs persists, the greater the impact on economic activity will be," the report states.

For October, BBVA Research's forecast points to a CPI of 4.8%, 1% lower than in September, and 4.4% by the end of the year.

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