Rising mortgage costs compared to a few months ago, however, have not yet translated into a consistent drop in demand for Italian housing
The slowdown in loan applications, however, will have an impact “on the timing of sales, and the increase in the stock of homes offered makes it plausible that house prices will stabilize,” Paola Ricciardi (Kroll Real Estate Advisory Group) told We Wealth
Despite the rate hike, the housing market in Italy has not yet shown the signs of cooling that are visible in other countries where monetary tightening is underway. In the years marked by expansive anti-pandemic policies, the Italian housing market had grown much more compassionate than in other advanced economies.
By 2020, Istat calculated, the price index for new and existing homes had risen 1.9 percent, with a 2.5 percent increase in the following year. In 2022, the ECB’s interest rates rose again, albeit somewhat later than the Federal Reserve’s. However, the rise in mortgage costs from a few months ago has not yet translated into a consistent drop in housing demand.
“At the moment, we are not observing any significant signs of demand reduction, which indeed, except for a physiological drop during August, seems to be quite buoyant and on the rise compared to 2021; in all our Italian markets, the main indicators we monitor point to strong demand,” Victor Ranieri, Country Manager Italy at Casavo, one of Italy’s most established proptechs, told We Wealth. “The average number of visits per ad is up 14 percent in the first half of 2022 compared to the second half of 2021,” Ranieri added, “the number of days that ads remain on the market is down 9 percent in the first half of 2022 compared to the second half of 2021.” The ECB’s first hike occurred last July, and its expected effects, including a reduction in credit demand, will likely take some time to manifest.
“The cost of debt in Italy is showing continued signs of growth. The decrease in consumption, a trend already underway due to inflationary growth, will increase the propensity to save,” and also “in the residential sector, a slowdown in loan demand for the purchase of both first and second homes is expected in the short term, in both modes of interest rate application, fixed or variable,” Kroll Real Estate Advisory Group’s Country Managing Director Paola Ricciardi told We Wealth. The slowdown in loan applications will have an impact “on the timing of sales, and the increase in the stock of homes offered makes it plausible that house prices will stabilize,” Ricciardi added, “except for new products brought to the market by the major real estate initiatives underway in Milan and Rome, historically more dynamic and attractive markets than other Italian locations.”
If we dwell on the snapshot of the present, “the only data that might suggest a slowdown,” said Casavo’s Italian Country Manager, “is the average discount that divides the marketing price from the selling price, up by almost one percentage point (from 6.8 percent to 7.6 percent) in the first quarter of 2022 compared to the fourth quarter of 2021.” An early signal, predating the consequences of high prices due to the war in Ukraine and rising rates, but indicative of a greater willingness on the part of sellers to reduce their claims.
“Overall, we have no signs to suggest that rising interest rates at the moment are altering the market outlook, although further hikes planned for the coming months could have a greater impact,” Ranieri added.
Milan and Bologna were running the fastest: they may be observing the most significant slowdown
In which cities will the turnaround be most visible if the cooling is there? In the hitherto most exuberant cities: Milan and Bologna, Casavo said, where there have been “very high values since the beginning of 2022 for average ad visits compared to the other capitals.” Compared to the average in Rome, Florence, and Turin, the number of visits per listing had risen 25 percent in Milan and 70 percent in Bologna.
“Listing prices also show the same trend: in both cities, they have been growing rapidly for more than a year (Milan +10%, Bologna +8.2% since the beginning of 2021) with no signs of a reversal.
However, Milan and Bologna are also the two cities where average negotiation discounts, although not by far the highest (Florence is steadily above), had significant increases between the end of 2021 and the first months of 2022 (+44% in Bologna and +20% in Milan, respectively).” Compared to the listing price, the average discount recognized at the time of sale is 7.5 percent in Milan and 6.9 percent in Bologna.
