Italy Home Sales Stall as Mortgage Rates Bite

The weakness is concentrated in the cities most exposed to financing costs and valuation pressure. Milan, the country’s deepest residential market, was flat in the quarter, while Florence fell 8.3%, a sharp drop that underscores how quickly demand can cool when borrowing costs rise and affordability tightens. Rome eked out a 0.4% gain, but the broader message is that the post-pandemic housing rebound is now losing traction just as tighter monetary conditions are still working through the system.

Nomisma said the full effect of higher rates, which have risen since April, should be felt more clearly by year-end. That lag matters. Housing is typically slow to turn because buyers need time to reprice expectations, while sellers often resist cutting asking prices immediately. But once rate pressure shows up in transaction volumes, it often precedes softer pricing, slower turnover and weaker activity for builders and related industries.

The mix of buyers also shows an increasingly rate-sensitive market. First-home purchases accounted for 72.7% of all transactions, unchanged from the previous quarter, while mortgage-backed deals remained below half of the total at 46.6%. In Rome, Bologna, Milan and Florence, more than half of deals involved a mortgage, making those cities especially vulnerable to further tightening in credit conditions.

New-build demand remains strongest in Milan, where such purchases still account for more than 12% of the total, but that is below the roughly 15% Nomisma considers normal for the city. That suggests even premium and urban demand is not immune to the squeeze. Florence looks more exposed still, especially if the European Union’s housing sustainability rules add to compliance costs and weigh on the investment case for older stock.

The rental market, by contrast, remains firm and is absorbing some of the pressure from weaker homebuying. About 248,000 lease contracts were signed in the quarter, up 3.1% year on year, while annual contracted rents reached almost 1.7 billion euros, up 6.3%. Rome and Milan both posted gains in new leases and annual rent volumes, reinforcing the view that households are increasingly renting rather than buying as financing costs rise.

That shift is significant for investors because it suggests the housing slowdown is not evenly distributed. Owners of well-located rental assets may still benefit from stronger rent growth, while developers, brokers and mortgage lenders face a softer sales environment. The clearest risk now is that if rates stay elevated into the autumn, the current plateau in transactions turns into a broader cooling in prices, especially in weaker cities such as Florence.