An increase in the cost of mortgage loans could slow down the purchase of homes.
By TPN, in Property, Portugal, Business · 30 Jan 2022, 20:08 · 2 Comments
According to a report by idealista, with house prices consistently rising in Portugal the country is facing a real estate bubble with real potential of bursting.
Buying a home is getting more and more expensive, with prices rising since mid-2013, as shown by data from the National Statistics Institute (INE). This reflects the dynamism of the Portuguese residential market, but also the lack of houses compared to demand. For five consecutive years, house values on the Portuguese market have shown annual variations greater than the value at which the European Commission (EC) considers that a market is at risk of a price bubble, as Eurostat pointed out in August 2021.
And it is not the only entity to reach this conclusion: “After the third quarter of 2017, there may be signs of exuberant price formation in the Portuguese residential market”, concludes a CaixaBank study published in January 2022. This means that Portugal is at risk of a price bubble.
Price bubble in Portugal
The solution seems to be in raising interest rates on home loans, which are now at historic lows, attracting many families to buy a home. A possible rise in key interest rates by the European Central Bank (ECB) has been talked about in recent months. But Christine Lagarde, the president of the ECB, went public last November saying that it is “highly unlikely that the conditions will be met to raise interest rates in 2022”. The truth is that an eventual rise in interest rates depends on inflation – which is currently on the rise in the eurozone – and on how long the high prices will persist in the market.
Supply and demand imbalance
Due to an increasing imbalance between housing supply and demand there are “signs of a potential overvaluation of house prices” in Portugal, warns the EC and there is still potential for overvaluation.
This perfect storm was due to the combination of several factors that boosted demand for the Portuguese residential market. Houses have appreciated in value from the pandemic and families have managed to save up the necessary savings to buy a house or to apply for a housing loan. And, secondly, the financing conditions for home purchases are now more inviting – especially given the low interest rates.
However, the supply of homes has not kept up with the explosion in demand. CaixaBank's analysis shows that since 2006, less than 20 new homes are built in Portugal for every 1,000 homes. The data therefore shows that “there was no excess supply of new homes exerting downward pressure on house prices”, the study concludes.
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Comments
Very interesting data, conventional theory, per this article, has that there will be a bubble burst this year. Three unrelated dynamics, if real, will affect the actual outcome ... (1) Average house prices are way beyond the average Portuguese to afford, therefore the bottom of the market will fall. Not to mention financial losses from lockdown (2) Laguard is wrong, the ECB will be forced to raise rates - in which case middle-class purchases will crash. (3) The upper-end prices (above 500k) will continue to be inflated by northern european buyers, seeking to avoid high taxes, dense population and Vitamin D from the sun. I haven't mentioned the fourth possibility, a black swan event, a really messy response by the West to Putin's invasion of the Ukraine. Resultant serious political uncertainty causes Banks suddenly restrict loans (like overnight) , and we're back to 2008. Which presaged a really bad 8 years for the Portuguese property market. Good news for some, perhaps ...
By Hugo from Algarve on 31 Jan 2022, 19:27
Property prices are by now unrealistic and the quality regarding for example isolation and ventilation is low standard in Portugal. EU is creating slave states of the smaller European countries where the native people never can achieve enough money to buy house or apartment.
By Magnus from Other on 31 Jan 2022, 23:31
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