House price correction warning

• 20 February, 23

In an analysis shared by CNN Portugal, the rating agency recalls that “since 2015, house prices in Portugal have increased, on average, 9.1% per year, one of the fastest growth rates in the European Union and well above the average of the 27, of 5.5%. Continued economic growth, low-interest rates, and investor demand have contributed to this development”.

Now, the scenario has changed: “The economy is slowing down, high inflation is driving interest rates and it is likely that investor demand will start to fade, increasing the risk of falling prices”. The agency’s analysis even says that “home prices have exceeded intrinsic values, exacerbating the risk of a correction.”

Even so, Moody’s signals, based on data from the Bank of Portugal, that between 2018 and the second quarter of 2022, “about 50% of houses were bought with cash” and not through bank credit. This represents less reliance on loans than in other European countries. A decade ago, cash purchases accounted for around 25%.

Rising interest rates also made real estate assets less attractive to foreign investors, who accounted for 11.7% of acquisitions in June 2022. If the golden visa program really ends, Portugal will be less attractive to foreigners, which contributed to the doubling, since 2011, of house prices in the areas of Lisbon, Porto, and in the Algarve region.

Cre: Portugalnews