In 2022, house prices will rise by a record 18.7%
A rating outside the usual places
Part One: Home prices haven’t risen this fast since 1992, according to Confidencial Imobiliário’s Home Price Index.
“The ascent is very expressive, but it should be read with great caution, because very different realities are hidden in it. In the more expensive markets it is fairly stable. For example, Lisbon increased in value by 10% in the third quarter, which is impressive, but it is not what it used to be,” explains Ricardo Magalhães, director of Confidencial Imobiliário.
In other locations, starting from lower bases, growth is accelerating even further. “There are other district capitals and medium-sized cities that are growing at 20 to 30%,” the official points out. Example: if the square meter is 800 euros and goes to 1600 euros, there is a valuation of 100%. But this value remains lower than that in major urban centres.
And why are these new locations so appreciated? Because there is more demand for it. First, because there were people who were being pushed from the urban centers to the suburbs. Then, because the pandemic also allowed many to live further away from the big cities.
Rising interest rates also contribute to this question: as interest rates rise, so does the value of the installment. Therefore, more families are excluded from certain values because they do not meet the effort percentage. The alternative is then to look for cheaper homes where the ratios can be met. In general, these houses are located outside major urban centers.
“They have to hold back on the price, otherwise they can’t buy,” summarizes Francisco Bacelar, president of ASMIP, president of the Association of Real Estate Agents of Portugal (ASMIP).
One year, two rhythms
Second part: since the summer, house prices in Portugal have not risen as fast. In the first half of the year, the average monthly increase was 2%. From July it has been halved. And the base effect also has implications for this analysis.
“It makes sense that although there are significant differences in the price per square meter in absolute terms, they are now smaller in percentage terms. Appreciating 500 more than 500 is 100%. But valuing 500 over 1000 is 50%,” argues Ricardo Magalhães, director of Confidencial Imobiliário.
For this specialist, “there must be a cooling of the market, also due to the change in financing”, with stricter criteria and the pressure of interest rates complicating the bills when buying a house. “It is important that the market stabilizes, also because there are figures that cause unrest,” adds the specialist.
And if it were the properties outside major urban centers – “which were not attractive to most families” – that contributed most to the price increase, they will also dictate the cooling of the real estate market, expects Rui Torgal, director general of the Era Portugal network. Because with high-quality real estate in large cities “you don’t notice a big change in value”. And how is it justified? “It comes from a context of some uncertainty, families are delaying their purchase to understand how the market is evolving.”
The president of ASMIP, Francisco Bacelar, confirms that “in the last two months of 2022” the intermediaries were “very pessimistic about the decline in demand”. The signals from the European Central Bank also did not help, such as four consecutive interest rate hikes. Then came the generally quieter Christmas period. Rui Torgal even says the sector was “in the eye of the hurricane”.
Are houses getting cheaper? Not
Does a slowdown in valuation mean prices could start falling? If you think that, you are wrong. “The room to devalue houses is not on the table. That is different from saying that the market will stabilize the valuation rate,” explains Ricardo Magalhães of Confidencial Imobiliário. That is, houses will become more and more expensive, but not so sharply.
Inflation itself is giving signals in that direction, for example with steel prices returning to pre-war levels in Ukraine. This means there is less pressure on construction costs and therefore on buying new homes.
But the Portuguese problem is another: there is a lack of supply for so much national demand, especially in urban centers, where there was also some immigration pressure, Ricardo Magalhães points out. “We’re not producing enough new homes for this kind of demand.”
And if there were any doubts about 2023, Francisco Bacelar dispels them: despite the fears at the end of 2022, real estate activity picked up again at the beginning of this year, with a “return of demand”, which is “monitored”. ” by prices. “As long as there is demand, prices will remain the same,” he warns.
With the uncertainty, he says, there are owners who can “pull back asking prices,” bringing the asking price closer to the actual selling price. Why has the top already been reached? “I can’t sign because the supply is in high demand. I don’t think they’re going down sharply everywhere.”
“We do not expect or estimate that there will be a significant price drop. We will probably have a stabilization of prices after the first quarter,” adds Rui Torgal of Era Portugal. And with it a deeper search. Because the households themselves, with the signals coming in about interest rates, are starting to gain confidence and ” perceive that stabilization is near”.