By Andrea Hargraves 
In 2022, home prices will increase by a record 18.7%
Estimation outside the usual places
Part 1: Not since 1992 have housing prices increased at such a rapid pace, according to Confidencial Imobiliário Residential Real Estate Price Index.
“The rise is very telling, but it must be read with great caution, because it hides very different realities. In more expensive markets, it is quite stable. Lisbon, for example, appreciated 10% in the third quarter,” explains Ricardo Magalhaes, Director of Confidencial Imobiliário, Which is impressive, but it’s not what it used to be.
In other locations, starting from the lower bases, growth is more accelerated. “There are other capitals and medium-sized cities that are growing by 20 to 30 percent,” the official confirms. Example: If the square meter is 800 euros and it comes to 1600 euros, then there is an estimate of 100%. But this value is still lower than that practiced in the major urban centres.
And why are these new sites so highly regarded? Because there is a greater demand. First, because there were people pushed from urban centers to the periphery. Then, because the pandemic has also allowed many to live far away from major cities.
An increase in interest rates also contributes to this demand: if interest rates rise, so does the value of the premium. Therefore, more families end up being excluded from certain values for not complying with the rate of effort. The alternative, then, is to look for cheaper homes that allow proportions to be achieved. Generally, these homes are located outside the major urban centers.
“They have to restrain themselves in the price, otherwise they can’t buy,” Francisco Basilar, President of the Association of Real Estate Agents in Portugal (ASMIP), ASMIP, sums up.
One year, two beats
Part Two: Since the summer, housing prices in Portugal have stopped rising at such a sharp pace. In the first half, the average monthly increase was 2%. As of July, it has halved. The underlying effect also has implications for this analysis.
“It is natural that although there are large differences in the price per square meter in absolute terms, now it is smaller in percentage terms. The valuation of 500 over 500 is 100%. But the valuation of 500 over 1000 is 50%,” argues Ricardo Magalhaes, Director Confidential Imobiliário.
For this specialist, “there has to be a cooling in the market, even because of the change in financing,” with stricter standards and interest rate pressure complicating billing when buying a home. “It is important for the market to stabilize, not least because there are numbers that generate turbulence,” the expert continues.
And if it is real estate outside the large urban centers – “which has not been attractive to most families” – that has contributed most to the price hike, it will also dictate the cooling in the real estate market, predicts Roy Torgal, general manager of the Era Portugal network. Because in high-value real estate in large cities “one does not notice much change in value.” And how do you justify it? “It comes out of a context of some uncertainty, households are postponing their purchase, to understand how the market will evolve.”
“In the last two months of 2022,” ASMIP President Francisco Pasilar asserts, brokers were “very pessimistic about the drop in demand.” The signals given by the European Central Bank did not help either, such as four consecutive hikes in interest rates. Then came the generally quieter period of Christmas. Indeed, Roy Torgall says the sector was “in the eye of the hurricane”.
Will homes get cheaper? No
Does a slowdown in valuation mean prices could start to fall? If you think so, you are wrong. “The area of homes to be depreciated is not on the table. Which is different from saying that the market will fix the appreciation rate,” explains Ricardo Magalhaes, of Confidencial Imobiliário. That is, the houses will still be more expensive, but not in such a sharp way.
Inflation itself gives signals in this direction, for example, with steel prices returning to pre-war levels in Ukraine. Thus, there is less pressure on construction costs and therefore on the purchase of new homes.
But the Portuguese problem is another: there is an undersupply of this national demand, especially in urban centres, where there has also been some pressure from immigration, notes Ricardo Magalhaes. “We are not producing enough new housing for this kind of demand.”
And if there were any doubts about 2023, Francisco Basilar dispels them: despite the fears at the end of 2022, real estate activity gained momentum again at the beginning of this year, with the “demand yield”, which is “watched” according to prices. He warns that “As long as there is this demand, prices will remain the same.”
Under uncertainty, he says, there are owners who may “back off asking prices,” bringing the asking price closer to the actual sale value. Why has the summit already been reached? “I can’t sign because there is too much demand for supply. I don’t think they are dropping so sharply and all over the place.”
“We do not anticipate or estimate that there will be a significant drop in prices. It is likely that, after the first quarter, we will achieve price stability,” adds Rui Torgal of Era Portugal. And with it, a deeper search. Because the families themselves, with the signals received regarding interest rates, are beginning to be more confident and “realize that stability is near.”