Bubble? What Bubble?

Why have I been seeing so many reports, surveys, and opinion pieces in the Spanish media, asking if the Spanish property market is overheating, is it in a bubble heading for an inevitable bursting, is it a repeat of 2008? I don’t think so, and that’s because there are absolutely no similarities between pre-2008 market conditions and the 2026 market. The structure of the market is different. The challenges the market faces are different.

As we head into 2026, we still have a few weeks to wait for the full year statistics to confirm how the Spanish property market performed in 2025, but the new format of rolling monthly statistics from the Notaries means we can be fairly confident the total for 2025 will be another all-time record for overseas buyers. The overseas sector was already in full recovery mode following the 2008 economic meltdown, with over 100,000 foreign buyers in each of the three years before Covid-19 arrived in 2020.  The totals for the next two years were distorted by lockdowns and travel bans, but we are now at three straight years of strong growth in the overseas part of the property market. The result is that between 2023 and the end of 2025, the overseas sector grew by 40% in transaction numbers. Is it this level of growth why talk of a bubble, an overheating market has emerged? 

A Market of Two Halves

The overall property market in Spain can be divided into two distinct sectors, the domestic and the overseas. The domestic sector takes 80% of the market, while foreign buyers have a 20% market share. I’ve already mentioned the post-Covid growth of 40% in the overseas sector, but without looking at what happened in the domestic market over the same period, we can’t begin to assess the overall market. When we do, we see a very different market, with much slower growth of 23%. And if you look at the differences in transaction numbers for the two sectors of the Spanish property market between the absolute peak in 2006 and 2026, there are similar discrepancies: the number of foreign buyers has increased by 57%, while the domestic numbers are still 33% lower than in 2006. I think the explanation for the slower growth is that the domestic market is much more mortgage-dependent than the overseas sector. Spain’s banking crisis post-2008 tightened lending criteria to such an extent that large deposits were required from domestic buyers, slowing down the recovery in that sector. At the same time, it was virtually impossible for overseas buyers to secure a mortgage and, as a result, in recent years, the overseas sector has been dominated by cash buyers, and still is, particularly at the higher end of the price range.

The reality is that the overall total of purchases in Spain is still well behind the 2006 record total, 25% behind according to the latest stats. In my view, it will be 2027, and probably even later, before that 2006 record is surpassed. Today’s market is clearly not a bubble. However, I think it’s worth mentioning that the 2006 record of 955,186 transactions was the culmination of a decade-long building frenzy during which Spain constructed as many as 800,000 units annually, more than Germany, France, and the UK combined. It was substantially over-supplied.

2006 v 2026

When we compare what was being bought back in 2006 with now in 2026, there’s another difference that’s easy to spot.  Back then, approximately 40% of all purchases were for new-build properties. In contrast, in 2026 new-builds make up less than 10% of the market. That’s the result of Spain’s construction sector almost disappearing - post-2008 it shrank by 95%. Capacity disappeared, skills disappeared, finance disappeared, and what disappeared over a short timeframe is taking decades to recover.

The numbers speak for themselves. Spain is currently completing around 100,000 units per year, about 40% below what is needed to cover new household formation, never mind demand for second homes from both domestic and foreign buyers, plus the rental investment sector. In October 2024, the Bank of Spain estimated that Spain is lacking 600,000 properties just to cover new household formation since 2021, when it says the demand/supply ratio became seriously uncoupled. New household formation is currently around 275,000 annually, a figure predicted to rise to around 330,000 by 2028. In addition, the overseas sector of the market has gone global, with over 50% of foreign buyers choosing to be resident in Spain. Nationalities that hardly registered two decades ago are now buying in their thousands annually. The supply-side shortfall seems set to continue for the foreseeable future. Where’s the bubble? 

Spain’s property market was grossly over-supplied when the global financial crisis kicked in, mostly with poor-quality properties in locations nobody wanted. When SAREB, Spain’s ‘bad bank’ was established in 2013, it was estimated the property overhang it was tasked with disposing of amounted to 1.5m unsold units. The most recent data shows the real structural issue in the property market is long-term, chronic under-supply when compared with both domestic and overseas demand. The legacy of the 2008 meltdown in Spain is still shaping today’s housing shortage. So, in my view, it is absurd to even whisper the word ‘bubble’.

^{©Barbara Wood}

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