According to a report by idealista/news, the Portuguese residential market has shown signs of overvaluation since 2018. Even during the pandemic, house prices continued to increase and in the first quarter of 2022 they even jumped by 12.6% compared to the same period last year, this being “the most significant price increase” since 2010, pointed out the National Statistics Institute (INE).

Now, the Bank of Portugal (BdP) has stated that with the recent changes in housing credit (increase in interest rates and new age limits), there is a risk of a reduction in house prices in the country.

“The risk of a reduction in prices in the residential real estate market, due to changes in financing conditions”, can be read in the Financial Stability Report (REF) published this month by BdP. This means that the changes that are taking place in housing credit can drive away demand, dampening the purchase of houses and, consequently, lowering housing prices.

Although domestic bank credit has not been the main factor behind the rise in house prices in recent years, the regulator led by Mário Centeno considers it “fundamental to ensure that it does not assume a decisive role in the evolution of prices in the real estate market, in a context of the recent higher growth observed in housing credit”.

Inflation

But this is not the only factor that can impact the demand for homes in the country. “With high inflation, the reduction in real income and the increase in financing costs resulting from the normalisation of monetary policy reduce the borrowing capacity of individuals, which may lead to a reduction in demand for residential real estate. However, residential real estate should remain attractive in a context of portfolio diversification by investors”, explains the BdP.