The first half of 2023 marked a slowdown in the residential real estate market, but a recovery could be seen starting from the second half of 2024; the slowdown in inflation and the possible drop in interest rates could herald a new impetus for the housing market in Italy starting from 2024.

Real estate sales in Italy (2023)

In the first half of 2023, as expected given the trend in mortgage rates, the residential real estate market contracted. In particular, there was a decrease in sales of -12%, compared to the same period of 2022, for a total of 350,855 transactions (Revenue Agency data), of which 166,745 transactions in the first quarter and 184,110 in the second quarter, respectively -8 % and -16% compared to the equivalent quarters of 2022.

The energy requalification of the building stock will be a fundamental driver in the near future.

However, if we consider the performance of the first half of the last 10 years, the picture changes significantly: compared to the average of sales, equal to 277,550, the first half of 2023 is up by 26% and is the third best of the period immediately after the record semesters of 2021 and 2022, resulting from the post-lockdown residential market flare-up. This is indicative of the fact that the increase in interest rates, the main reason that slowed down buying and selling activity, is offset by a demand for properties which still remains high compared to the pre-pandemic period.

Real estate transactions in Italy area by area (2023)

In the first half of 2023 all the macro-areas experienced a negative change: -13.1% in the North, -16.1% in the Center and -8.2% in the South. Overall, the capitals showed a change of -14%, while non-capital cities -11.7%.

Looking at the ten largest Italian cities by population, a total of 58,260 transactions were recorded in the first half of 2023, -15% compared to the first half of 2022. All cities showed a negative trend: in particular Bologna recorded a drop of -23.3 % compared to the same period of 2022, followed by Bari (-22%), Milan (-20.0%), Padua (-18%) Rome (-16.5%), Florence (-12.7%), Genoa (-10.4%). Smaller decreases in Turin (-9.1%), Naples (-6.1%), and Palermo (-4.6%).

Prices, sales times and discounts on houses in Italy

In terms of house prices in Italy, the first half of 2023 saw an average variation of around +0.3%, substantially stable compared to the same period of 2022. Considering the half-yearly variation, in the first half of 2023 all the large cities recorded stable values. Higher variations were recorded for Bari and Palermo, both at +1%, and Milan +0.9%.

Average sales times in large cities are slightly increasing, on an average of 4.3 months, compared to 4.2 in the second half of 2022.

In the first half of 2023, the average discounts between the price requested by the seller and the closing price of the deal for large cities decreased slightly, going from 11.2% to 10.5%. This average also actually sees a significant difference between “priced” properties, which see the indicated percentage still maintained at around 11%, and those which are instead placed on the market at non-current prices, with subsequent reductions.

Forecasts for the real estate market in Italy until 2025

Real estate sales 2013-2025

Starting from mid-2022, the increase in inflation has caused a new change of direction in the real estate market with the start of a new cycle. If on the one hand real estate investment is the most traditional way to protect oneself from inflation, on the other this variable has caused a slowdown in activity: the cost of construction has increased, creating many difficulties among developers, the restrictive policy of ECB with the progressive increase in the interest rate for refinancing operations which, from even 0% in the period from the beginning of 2014 to mid-2022, reaches 4.5% in September 2023, investment activity has slowed down ” capital markets” which in 2022 in Italy closes with a volume of 12 billion, while in 2023 it is estimated to be worth around 30 percent less.

A scenario which is contracting residential property sales activity compared to the extraordinary two-year period 2021-2022 but which would appear to normalize with the (pre-pandemic) level of 2019.

The current macro-economic fibrillations seem to confirm the end of the 2020-2022 mini pandemic real estate cycle and the beginning of a new, normalized phase, which at least for 2023 and the first half of 2024 will be conditioned by a level of interest rates interest no longer at historic lows, as it was between 2017 and 2021, and by a consequent decline in the volume of mortgages disbursed for home purchases, which already recorded a minus 30% on an annual basis in the first half of 2023.

However, expectations for the future remain optimistic (barring upheavals due to the sudden resurgence of tensions in the Middle East). 

Inflation, in this first part of 2023, has taken the downward path with the national consumer goods index (NIC) which fell from 10% in January 2023 to 1.7% last October.

In forecasting terms, the decrease in the volatile component (consumer price index which takes into account energy goods and therefore also gas) is good news because it anticipates a reversal of the trend of the underlying component and therefore a slowdown of the inflation curve which will December 2023 should close with an annual average of around 5.6%. The harmonized projection of the consumer price index of the Euro area indicates a decline in inflation which will decrease markedly in 2024 (to 3.2%) and 2025 (to 2.1%).

In light of the decline in inflation, it is plausible to think that the ECB’s tightening of interest rates will ease and as early as 2024 rates could return to more sustainable levels for businesses and families.

In addition to the prospective decline in inflation and the dynamics of interest rates, the attention of operators is also focused on the energy issue and the new role of the home, which will drive the residential market in the near future.

First of all the energy question. The awareness that the property is a measurable energy-intensive entity is significantly greater than it was a few years ago. It is estimated that the most energy-intensive buildings in Italy amount to between 1.8 and 2 million. 

With the 110% Superbonus, around 430 thousand were retrained; therefore there still remains a stock of around 1.6 million residential buildings to be redeveloped. Alongside this urgency, which is first and foremost environmental, there is also a family need in terms of energy optimization and well-being.

Another trend that will shape a new real estate phase concerns the role of the home. The order of the variables according to which families choose homes has changed. Requirements such as spaces for conviviality, smart-working rooms, vegetable gardens, gyms, laundry services, among others, understood from a condominium perspective, are increasingly requested like traditional features such as the lift, outdoor space or parking space .

The newly built real estate product, whose supply in Italy has already been unable to satisfy potential demand for several years, will have to increasingly take these dynamics into account.