The real estate market will “cool down” (but not the price of houses)

The lack of supply in Portugal is one of the factors to take into account so that house prices do not fall in the near future, even in a scenario of uncertainty and expected reduction in sales. For those who want to take the plunge, the advice is simple: if the bank does not give you that much, lower your expectations, opt for a smaller house or away from the center.

Rise in interest rates, decline in purchasing power, restrictions on mortgages. The perfect storm for homebuyers is brewing. For the moment, the effects are still not being felt on the main real estate networks in Portugal. But no one is excluding that the next few months bring a scenario of rupture – or, at best, “stabilization” – of the number of transactions.

“The market will cool down. It’s normal”, summarizes Ricardo Guimarães, director of Confidencial Imobiliário. The consultant estimates that, from June to August, 37,900 homes were sold in Portugal, a decrease of 8% compared to the result of the first quarter.

However, Century 21 officials Keller Williams (KW) and Era assure CNN Portugal that the company’s results, at least through August, are up on last year – double digits included. But they do not hide that the next few months could bring changes in the balance sheets.

“The market is resilient and there is no panic. It is natural that from now on there may be a small contraction”, explains Rui Torgal, general manager of Era in Portugal. Ricardo Sousa, who runs Century 21 in Portugal, says “market stabilization is inevitable”.

At KW, says Eduardo Garcia e Costa, “growth remains very strong but has slowed down over the past four months”. “The great certainty is that demand will decrease. The big uncertainty is what will happen to the supply,” he adds, given the current context.

Several warning signs emerged from the market. In August, according to the Bank of Portugal, the number of Bank ratings fall for third consecutive month and the Home loans register first deceleration since October 2020.

And if between April and June there was 43,607 houses were exchanged in Portugal (4.5% more over one year), “in June, for the first time since February 2021, there was a drop in the number of transactions“warned the INE.

Alarm bells seen without surprise by the real estate sector, in particular because these last years have been of exceptional growth. “The market has grown a lot over the past two years. Any correction that may occur now is not surprising. If I didn’t correct it, it would be strange”, underlines Gonçalo Nascimento Rodrigues, consultant in real estate financing.

Will real estate prices go down? Don’t count on it

If there are fewer sales, house prices will eventually go down. This would be the first thought of those who, in the current context, evaluate the purchase. But the best will be to “get the horse out of the rain”: despite the uncertainty, the houses will not be cheaper.

And there are three factors that explain this outlook for the future: the lack of supply, the drop in the return on deposits are pushing more and more Portuguese people to invest their savings in real estate and foreign interest is growing. From April to June, foreigners bought 2,783 homes in Portugal, representing 6.4% of total transactions.

The law of supply and demand then does its part. According to Confidencial Imobiliário, during the summer there were only 39,000 homes for sale in Portugal, the lowest figure in 15 years. Before the pandemic, there were about 60,000.

“I expect that the reduction in demand will not be enough to bring prices down,” said Ricardo Guimarães. Homes may not be worth that much, he says, but they won’t stop following this trend.

And the figures, for now, help to confirm it: in the second quarter of 2022, according to the INE, houses were 13.2% more expensive than a year ago. Real estate agencies claim that the average value per transaction is also higher. “The gap between supply and demand, even with this small contraction, will not cause a slowdown in terms of prices”, reinforces Rui Torgal da Era.

The market does not expect a strengthening of new construction, in particular because the rise in the cost of materials makes this investment less and less attractive for companies. In this way, the potential effects of uncertainty caused by rising inflation and interest rates end up being camouflaged. The logic is simple: if there is not enough supply, there is more pressure on prices – and therefore less room for them to fall at the expense of uncertainty.

I want to buy a house. How do I adapt to the climbs? lower expectations

Rising interest rates have an impact on the amount that households can borrow from banks. If interest weighs more on the total cake, and without altering the effort rates, there is only one solution left: to pay the same maximum deposit, the amount actually assigned to the purchase must be reduced – which should leaving even more aggregate without access to loans. .

“If they are going to pay more for a loan, they can only pay less for a house”, summarizes Gonçalo Nascimento Rodrigues, consultant in real estate financing. And what to do when prices are still high? Reduce expectations. This is already happening with increasingly fearful customers seeking real estate networks.

“People may even put off their decision to buy a house. But there is a limit. What we are seeing is a greater need for people to move away from large urban centres,” explains Paulo Caiado, president of the Association of Real Estate Professionals and Companies in Portugal (APEMIP). In Lisbon, research takes place in places such as Sobral de Monte Agraço, Torres Vedras or Lourinhã, for example.

In addition to increasing the search radius, it also reduces the size of the house. “We’re redirecting your preferences,” says Ricardo Sousa of Century 21.

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