Portuguese house prices to fall 2.1% by 2024 - CaixaBank

Activity in the Portuguese real estate market "is proving to be less sharp than expected, at least in terms of house prices," according to CaixaBank Research, which has upgraded the country's growth forecasts for 2023. However, the Spanish bank is not as optimistic for 2024 and predicts a 2.1% decline in house prices. Nevertheless, a "gradual slowdown" is expected.

The study notes

that the number of home sales fell 9% year-over-year in the four quarters through the first quarter of 2023, with a larger decline in existing homes (-10.9%) compared to new construction (+0.1%).

"While sales are down from the record highs recorded in 2022 (167,900k), they are still 3% higher than in 2019 (154,800k). However, focusing solely on data from the first quarter of 2023, sales in that period (34,400k) were down 20.8% from the same period in 2022 for both existing homes and new homes (-23.4% and -8.3%, respectively)," the study said.

Housing supply also "continues to be constrained to meet housing needs given demographic trends" and suffers from "high construction costs," the document emphasizes.

Lower prices and slower demand in 2024

The Spanish bank notes that there is a natural "time lag between monetary policy and its impact on the economy," and in the case of real estate, this impact occurs on two fronts.

"On the one hand, higher financing costs do not incentivize potential buyers with less ability to qualify for a loan, causing them to necessarily look for a cheaper home. On the other hand, index updates for variable interest rates are gradual over time, so borrowers' perceived effort (as well as potential decision to sell) is also gradual," the study explains, adding that the second half of the year will be important for assessing the impact of rising interest rates on the market.

CaixaBank has no doubt about "the resilience of demand, the shortage of new housing and high construction costs, which will continue to support house prices, even in the face of strong interest rate rises".

The study predicts a 2.1% decline in home prices. "One of the main reasons for this forecast is the severe slowdown in demand. This year, we expect the number of sales to be more than 20% lower than in 2022 and that this low value will continue into 2024. The strong slowdown in demand over an extended period of time corresponds to lower prices, as we have seen in other developed markets," explained.

Nevertheless, the Spanish bank speaks of a "more moderate decline" and considers "unlikely" a significant price correction like the one that occurred between 2011 and 2013, "when the country was receiving financial aid and household debt levels were higher."