A decline in Portuguese house prices is unlikely, Brussels says.

According to a report by the European Commission (EC), house prices in Portugal continue to rise due to a shortage of supply and are likely to continue to do so in the future. "House prices in Portugal are expected to continue to rise, but at a more moderate pace, and a sharp decline in house prices is unlikely," the analyst report on Portugal said. Brussels expects "a moderate increase in house prices in the future, as interest rates are at reasonably high levels".

In addition, in its country assessment paper, the EC notes that "supply constraints will continue to exist, reducing the scope for significant price reductions," especially "in the context of strong demand for real estate from foreign investors. "

"In Portugal, house prices have doubled in nominal terms over the last decade, with a 34% increase in the last three years, from 2020 to 2022," the Commission said. In 2022 alone, "prices rose by around 13%".

The commission points out, however, that "action has been taken in response to recent developments in house prices." As part of this, it notes the macroprudential measures taken by the Portuguese Bank to reduce the average duration of mortgages to 30 years, as well as the More Housing program introduced by the government.

Brussels recognizes that real estate and its implications for financial stability "remain an area of concern" as "90% of mortgages in Portugal are variable rate" and an increase in Euribor "could significantly increase monthly loan payments" and put families under "financial stress".

The EC, however, has "some mitigating factors". For example, the share of affordable income needed to cover average monthly mortgage payments "remains affordable for most families and is below levels seen a decade ago." In addition, "the macroprudential measures taken by the Portuguese Bank in the third quarter of 2018 increased the resilience of families and, consequently, the resilience of the banking system. "