Many people have been asking me about the state of the real estate market in southern Sardinia, particularly in the Cagliari area and its surroundings where I work. In my experience, each property has its own unique story, and individual circumstances are crucial. Therefore, we must consider the economic context and the various factors that influence property prices.
In 2023, the housing market faced challenges due to rising mortgage interest rates and the erosion of household savings. After the post-pandemic surge in 2021 and more modest growth in 2022, the sector began to weaken in 2023, evident from the reduction in real estate transactions.
A key indicator to watch is the relationship between inflation rates and interest rates, which is fundamental to the European Central Bank’s (ECB) monetary policy. Typically, a central bank raises interest rates to curb high inflation and lowers them when inflation is low to stimulate spending.
On a positive note, inflation slowed down in 2023, which might lead the ECB to consider easing its monetary policy, potentially lowering interest rates to support the economy. However, the ECB’s decisions also depend on other factors such as economic growth, employment, and financial stability.
Inflation trends are influenced by various factors beyond the supply and demand for goods and services, including labor market conditions and geopolitical developments. For instance, the Consumer Price Index (CPI) includes energy goods, so changes in fuel prices can signal shifts in inflation trends. The recent drop in fuel prices is promising, as it may indicate a slowdown in the underlying inflation trend. However, economic forecasts always come with some uncertainty.
Another point to consider is that large Italian cities typically experience the effects of economic changes more quickly and intensely, and these effects eventually reach the Cagliari area as well.
According to current data, the harmonized projection of the Euro area’s CPI suggests a marked decline in inflation, expected to drop to 3.2% in 2024 and 2.1% in 2025. This indicates a potential decrease in interest rates.
Despite the slowdown in sales in 2023 due to rising mortgage interest rates, the real estate market remains optimistic. A recovery is anticipated in mid-2024 as interest rates are expected to decrease.
