El Clásico of Housing: Price Explosiveness in Madrid and Barcelona’s Real Estate Markets

This paper examines the dynamics of housing rental and sale prices in Madrid and Barcelona between 2007 and 2024, focusing on episodes of explosive price behaviour and their underlying determinants. The findings reveal that, although such episodes were relatively infrequent, they tended to persist over long periods and exhibited contagion effects across market segments. In particular, explosive movements in rental prices often preceded similar developments in house sale prices, highlighting the central role of the rental market in housing market pressures. Population growth increases the likelihood of rapid price escalation, whereas higher unemployment, rising interest rates, and greater hotel occupancy reduce it. The results suggest that housing policies should prioritise the rental sector and promote measures to ease demand pressures and expand housing supply to mitigate the risk of future price surges.