The Italian real estate market

The Italian real estate market is currently subjected to conflicting currents which will probably give rise to a new course in the coming times. The increase in interest rates, inflation, the victory of the centre-right in the political elections of last September 25, are all events that will have long-term repercussions on housing policies and financing for the purchase of homes, as well as on the trend of prices and sales. Here are some predictions with the help of Bruno Vettore, Real Estate Manager of the Asso Proprietors Study Centre.

How does the scaling of the superbonus impact the purchase of houses to renovate? It's not so much the super bonus that has a negative impact on sales of houses to be renovated, because it is more of a measure used on condominiums or houses that you intend to keep, benefiting from better quality and tax breaks. The lack of other bonuses, such as the 50 percent bonus, which is widely used and currently works well, would have a greater impact. The sector of houses to be renovated was instead affected by the increase in the cost of materials and in general by their difficulty in finding them, but this was more of a consequence in terms of the extension of intervention times. Once the deadlines were redefined, the companies were able to proceed, even if they settled on deadlines different from those initially agreed.

What are the other consequences of inflation and rising rates on real estate sales? To confirm the direction towards the decline in real estate requests there is also an increase in sales times. If in 2021 we were talking about 30-60 days, today we reach 90-120 days. In any case, the right property in the right area will still sell in 15 days, just as it can take a year for a lower quality property in a peripheral area. Today we say that we take more time to reflect, and also at the price negotiation level the buyer is a little stronger than in the past.

Is this slowdown in real estate sales positive or negative? On balance I would say positive. It's right that the market is balanced: moments of exceptional peak are always followed by exceptional problems, see subprime mortgages followed by very positive moments, while calmer moments are also followed by more manageable problems. Moments of greater reflection are also positive for the market because they reward quality more, favoring the achievement of the right price for the right product.

What will happen to house prices with the increase in ECB interest rates? What I expect following the ECB interest rates the increase, at least in Italy, is a stabilization of house prices, rather than a decline. In fact, sometimes we get confused between top properties and the total real estate market. The top properties, such as those marketed in the center of Milan, see few sales per year at decidedly high prices, but they are a very limited slice of the market that follows totally different logic. 95 percent of the market, i.e. the "real" market, has seen a moderate increase in prices in the last period, followed by a slight slowdown in demand following inflation and an increase in rates. Therefore, if we expected a still growing trend, we instead see not so much a drop in prices, but rather a lower than expected increase in prices. This is why I find it more correct to talk about the stabilization of real estate prices, rather than a decline.

Will the real estate sector take the hit from rising mortgage rates? The theme of interest rate on mortgages in this period it has a heavy psychological impact. However, it must be understood that for now the conditions are still rather favourable. We have variable rate mortgages between 1.5 and 1.75 percent and fixed rates between 3 and 3.50 percent, undoubtedly on the rise but still below the "alarm" threshold for the market, which I would set at around 5-6 percent. The important thing is that, despite the increase in ECB rates, the banks' offering policy is not changing, which is comforting about the good performance of the market. Even with higher rates, banks have maintained the same credit granting criteria, without restricting the requirements. This means a substantial stability of the real estate market, even if in the third quarter we expect a decline in sales and a stabilization of real estate prices.

How might banks react to a more significant increase in interest rates? Banks, in reality, with equal customer reliability, if i interest rates rise they earn more. In fact, their profit also consists of the spread, which rises when the mortgage reference rates rise. I therefore see no interest in decreasing the offer of banking products as interest rates increase, on the contrary. Even more so since the mortgage business, in itself residual in the banking economy, is however an important gateway for the sale of other products and services. An opposite attitude, and therefore restrictive in the granting of credit, would be seen if there was an increase in insolvencies, but for now this is not the case.

What is the panorama of bank mortgage offers today? THE new home loans they see a greater demand for variable rates with caps, a little more expensive than the pure variable rate but more protected because they ensure a maximum ceiling on the increase in interest rates. At this moment, commercial formulas that have fallen into disuse in the last decade are being dusted off, in which they were not necessary given the prolonged period of low rates. On the other hand, the offer for mortgages for young people under 36 is changing because the State guarantee no longer fully covers the subsidized rates, which have therefore been reduced as they are no longer convenient. Unless the new government thinks about broadening the guarantee base, these products have now taken a backseat.