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Despite relative stability, housing markets are still susceptible to changes in the economy, which can affect home prices, including recessions, interest rate adjustments, and employment shifts.
This assessment comes from a detailed analysis of Portugal by Brussels, as part of a broader economic review. The European Commission acknowledges the real estate sector’s resilience but suggests continued close observation, citing an ongoing shortage of housing supply.
The report on Portugal’s economic situation indicates that the number of completed homes increased by 12.3% in the second quarter of 2024, following a 5.7% decrease in the prior quarter. Construction permits also rose by 6.6% after a previous decline of 19.4%. However, the Commission notes that construction hasn’t yet met demand.
House prices have nearly doubled in Portugal over the past seven years, reflecting strong demand and limited supply. A significant price drop is considered unlikely.
During the first half of 2024, approximately 35% of housing transactions were financed with loans, highlighting the influence of cash buyers and non-resident investors, which helped insulate the market from changes in borrowing costs.
Limited housing supply, increased construction costs, and labor shortages are expected to prevent a major price correction in the near future.
The European Commission observes that Portugal’s real estate market has been resilient. A key factor in this stability is the relatively low loan-to-value (LTV) ratios in mortgage portfolios, with only 6% of loans exceeding 80%. This suggests banks are well-prepared to handle potential declines in property values.
However, the residential real estate market requires ongoing attention. The report notes that recent price increases were driven by non-resident buyers and limited supply, but these increases haven’t been matched by corresponding growth in household incomes, creating affordability challenges and potential long-term price instability.
