The residential real estate market has registered a significant slowdown in the volume of transactions, but without significant variations in average sales prices.
The main reason for this slowdown is based on the (increasing) evolution of Euribor, since the first half of 2022, which resulted in an increase in the cost of bank financing granted for the purchase of housing, although mitigated by exceptional government support for families and the implemented mechanisms to open up mortgage loans renegotiation and widespread offer of fixed interest rates by banks. This increase in the cost of mortgage loans has the consequence of reducing recourse to it.
The number of real estate transactions has been falling since the 4th quarter of 2021, which was speeded up on the 4th quarter of 2022. Overall, the drop in the residential sector is 22% (comparing the 1st half of 2023 with the 1st half of 2022), being 24% for used residential properties and 11% for new residential properties (data from the Statistics National Institute, INE).
This reduction in demand is not generating a downward impact on sales prices. This is concluded by the fact that the INE Housing Price Index reached a new record in the 2nd quarter of 2023, with the average housing price in Portugal standing at €205,348.
But there is a diversified behavior of the various price segments, in terms of the evolution of the number of transactions, depending on whether these segments are more or less exposed to the cost of mortgage loans. More specifically, the medium-high and high segments are less subject to the need for bank financing by buyers. There is also a continued increase in the average value of bank appraisals, which leads to the conclusion that, proportionally, houses with higher prices are being sold. In other words, there is a combined effect (price variation and mix of houses sold) that justifies the increase in the average price of housing in Portugal.
Volume of real estate transactions at national level
The upward trend in the volume of real estate transactions, seen since 2013, had an interregnum in the period of strongest impact of the 'viral pandemic' (2020 and early 2021), reaching a 'peak' in the 4th quarter of 2021, after which it has presented successive decreases.
When comparing the 1st half of 2023 with the 1st half of 2022, there was a 22% drop in the volume of real estate transactions in the residential sector.
Note the greater ‘weight’ of the volume of new property transactions in 2009 and 2010, compared to the years after that period.
Distribution of the volume of real estate transactions by major regions
All macro-regions (indicated above) are below their maximum volumes (reached around the end of 2021), with particular emphasis on the Porto Metropolitan Area, which, in the 2nd quarter of 2023, presented a volume well below the already achieved previously.
Global value of real estate transactions at national level
This is a graph with an evolution identical to that of the evolution of the volume of transactions, but in this one the 'weight' in value of new properties is more evident, as they have a higher unit price compared to used ones.
Regional distribution of the value of real estate transactions
If in terms of units transacted there is a high difference between data from the 2nd half of 2023 and the maximum 'peak' already reached in each macro-region, in terms of global value, this difference is much smaller, given the evolution of prices sales units.
Average value of real estate transactions at national level
Since 2012, the average sales price of housing in Portugal has been systematically rising, with the exception of a period in 2020 (effects of the 'viral pandemic'). At the end of the 2nd quarter of 2023 it reached €205,348.
Average value of real estate transactions by region
Lisbon, the Algarve and Madeira island concentrate the properties with the highest average value, being the regions where the luxury segment is mainly concentrated, capitalized by tourism from abroad.
Historical evolution of Euribor (daily data)
After several years with a negative Euribor (since 2015), in the first half of 2022 the European Central Bank promotes its increase with the aim of using it as an indirect inflation control mechanism within the European Community. The successive increases, to date, place it at highs comparable to those of 15 years ago (2008).
Global Effective Annual Rate on new home mortgage loan contracts
The successive increases in Euribor since the first half of 2022 have raised the GEAR (Global Effective Annual Rate) of new home mortgage loan contracts above 6%.
Average installment supported (average of mortgage loan contracts awarded in the last 3 months)
The goal of controlling inflation (and its harmful effects on European economies) led to a significant increase in Euribor in a short space of time (from -0.65% in December 2021 to +3.65% in August 2023) . Now this generated a brutal increase in the average installments for holders of mortgage loans contracts: for years and years the average installment was between €300 and €400, exceeding €600 in August 2023.
The last increase in the reference rate by decision of the European Central Bank occurred on September 14, 2023 (increase of 25 basis points). In terms of the real estate market, the current expectation is that there may be an interruption in the successive increases in the Euribor, which may be followed by a decrease in it, in order to alleviate the pressure on demand in the sector. However, although economic analysts point to a generalized decline in inflation rates in EU countries towards the end of this year and the beginning of next, they do not believe that the reference interest rate will be able to reach values close to those at which it was between 2012 and 2022.
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Marco Moura Marques
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