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Is there bubble trouble for Portugal’s Housing Market?

Is there bubble trouble for Portugal’s Housing Market? -
Is there bubble trouble for Portugal’s Housing Market? - Portugal Business News

Portugal’s Housing Market may be facing bubble trouble according to S&P Global Ratings in a report in January. The report predicts that Portugal’s house prices will fall by 4.4% in 2023, after rising by 6.8% in 2022. This would be the biggest fall compared to the forecast for 10 other European countries.

The ratings agency links this price fall to Portugal’s higher interest rates that are reflected on mortgages that are at a variable rate.

S&P predicts that sharp price corrections in the housing market will deepen and lengthen the recession all across Europe. The rapid increase in house prices outpaced the increase in income and in rents, while looming recession is expected to reduce real-estate investments. The current overvaluation in the housing market will be leading to price corrections.

The S&P housing vulnerability score shows that Portugal has an average risk of price corrections, while Luxembourg, Norway and the UK are at high-risk amidst rising interest rates. In neighboring Spain, S&P predicts that home prices will drop by 2.5% this year after increasing by an estimated 4.1% in 2022.

Some countries look more vulnerable than others to a 'boom and bust' scenario due to excessive price growth and high household debt. IHS Markit's housing market 'heat' index highlighted vulnerabilities in Luxembourg, Sweden, the Netherlands, Czechia and Denmark.

While in the eurozone overall, the increase in house prices since Q4 2019 is over 13%, in Portugal it went up by almost 17%. House prices in the eurozone increased by 8.8% y/y in Q3 2021, up by two percentage points versus the prior quarter and the fastest rate of increase in the series' history which goes back to 2005.

What is relatively new is the acceleration in the pace of house price increases in the EU since the start of the COVID-19 pandemic, with increasing demand for housing in a context where the monetary policy was stimulative.

The spectacular rise in Portugal’s real-estate prices was driven by foreign buyers through the golden visa program and the National Statistics Institute reported that this exacerbated the problem of housing affordability for locals.

Portugal is facing a housing crisis according to a survey by Expresso and citizens would like the Government to cut-back incentives linked to the Golden Visa program. Foreign investments increased by 42% compared to the previous year, reaching € 654 million in 2022, mainly due to U.S. and Chinese investors.

Bloomberg indicates in a January 24th report that foreign demand drove Portugal’s house prices to a 30-year high. While the report stated that international buyers helped fuel a hot real-estate market, data from Confidencial Imobiliario shows that Portugal’s housing market is now slowing down. This scenario is further strengthened by the S&P Global Ratings report that is expecting bubble trouble on the housing front.

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