"Reduction of housing prices in26% of the country's districts by2023."

The real estate market is getting further and further away from its past prosperity, and more and more signals are pointing to prices not only slowing down, but heading for a correction.

After the National Institute of Statistics (INE) reported two months ago the third consecutive annual slowdown in the average home price rate and the lowest values since the second quarter of 2021, the latest bank appraisal data further confirms the market has lost its fervor. In late August, other data provided by INE showed that the average bank home appraisal rate had a year-over-year increase of 7.6% in July. That's the fourth consecutive month of slowdown and the lowest since March 2021. "We are more conservative [in bank appraisals] today compared to six months ago," admits Francisco Virgolino, head of Prime Yield, stressing that this behavior is partly due to an increase in the number of home price reductions on various home sale platforms and an increase in the property's selling period.

What can the market do?

From INE's sample of 156 municipalities with data for this year, Anadia, Tondela and Tomar are the most affected by the real estate market slowdown in 2023, as they experienced a reduction in average bank valuations of more than 10% between January and July. The municipality of Anadia, in the district of Aveiro, has seen a 15% decline this year, mainly due to a 23.7% reduction in assessed values for houses. Among the 25 most populated municipalities in the country (with more than 100,000 inhabitants), Porto and Aveiro can be highlighted on the map, as they have experienced a 5.4% and 5.2% decrease in average bank valuations since the beginning of the year, respectively. "The exponential increase in prices caused by their coastal location may now be subject to a normal adjustment process", explains Maria Joana Canha, Head of Consulting at Worx, regarding these two markets. Francisco Virgolino recalls that "about three years ago Aveiro had prices like Porto", mainly because of its location near Invicta and the influence of the University of Aveiro on the city's real estate market.

There are fewer real estate appraisals, but prices aren't going down. They are even rising. In the municipality of Porto, the decline in bank valuation values is particularly noticeable in the house market, which has experienced a 20.1% decline since the beginning of the year - and a 13.3% drop in the last 12 months. Apartments in the Porto market show a more moderate decline at 2.4% since January. "Porto's data is surprising to me," says Vitor Ozoriu, administrator of Structure Value. The head of this real estate valuation and consulting company says that prices remain stable and are even rising in some areas of Porto. "There are fewer real estate valuations, but prices are not falling.

Lisbon is also among the municipalities where there was a decrease in the bank valuation of housing. However, this decline is more moderate: it has accumulated a correction of 0.5% since the beginning of the year. INE data show a tendency towards a reduction or greater deceleration in the largest cities, compared to a less pronounced deceleration in real estate bank valuations in the suburbs. This dynamic is particularly evident in the Lisbon metropolitan area, where Almada, Sintra, Loures and Seychelles have seen residential bank valuations rise between 7.9% and 4.2% this year - but well below the 12-month average of values recorded in these municipalities.

The national level housing market continues to be strongly supported by a lack of supply. In contrast to this more significant slowdown is Funchal, which from January to July gained 17.7% of average bank housing valuations. "Funchal is not a very big market and there are not many transactions," says Francisco Virgolino, noting that any significant investment in the market has an immediate impact. The latest INE data shows that the housing market in this region has 4,150 transactions in 2022, 48% more than the 2,800 properties sold in 2019. It is also a market with a strong foreign influence. "From 2019 to 2022, foreigners account for 9% of all homes bought in the archipelago, while previously they accounted for 4%," says Joana Fonseca, head of JLL, in a statement on JLL's entry into Madeira.

Experts surveyed by ECO do not predict a contraction in the housing market in the coming months, unlike many other European markets. They point to the shortage of real estate supply in the mid- to mid-high-end segment as a key factor that will continue to drive up prices, as well as the significant increase in housing construction costs over the past year. "The price of land has also risen and there are no developers cutting their margins," says Vitor Ozoriu, anticipating that "the trend will continue." On the other side of the equation, however, is demand, which has been shrinking for months due to rising inflation and interest rates, as well as the low incomes of most families. So the message is caution. "The national level housing market continues to be strongly supported by the lack of supply, which is clearly confirmed by all market participants, despite the fact that the number of transactions is decreasing and assets are on the market longer, which is certainly due to rising interest rates, the difficulty of obtaining credit and the contraction of the European economy", says Maria Joana Caña.