24 September 2023
Statistics Portugal (INE) has published the Housing Price Index for the second quarter of 2023.
But before mentioning the most critical data and commenting on each of them, it's important to remember that this INE study (unlike the "Housing Price Statistics at a local level", which won't be available for another month) only allows us to make general observations about the national real estate market, or some of its regions. While this is important and relevant, it may not apply to a particular situation, such as the valuation of a specific property you are considering buying or selling.
Having said that, I will list the most relevant data from this study and comment on each one.
DATA: the House Price Index rose 8.7% year-on-year (compared to Q2 2022), the same as in the last quarter.
COMMENT: the average year-on-year change between Q1 and Q4 2022 was 12.6%. In other words, in the last two quarters, the annual appreciation of homes has been slower than in the four immediately preceding periods.
DATA: that same index rose by 3.1% compared to the previous quarter (which, in turn, had only grown by 1.3% and 1.1% in the two last quarters).
COMMENT: the significant rise in the quarterly variation of house prices may suggest, apart from some particular seasonal effect, that houses may be resuming a more substantial appreciation (which, it is interesting to point out, contrasts with the interpretation suggested by the previous indicator, and even with some of the news that has been made public).
DATA: There was a 22.9% reduction in the number of transactions compared to the same quarter last year. In other words, 9,983 fewer homes were sold than in the 2nd quarter of 2022.
COMMENT: this is the 4th consecutive quarter in which the number of transactions has fallen compared to the same period in the previous year. And while in Q3 2022, this negative variation was only 2.82% (-1,224 homes); in Q4 2022 and Q1 2023, it had already been 16.04% (-7,359 homes) and 20.79% (-9,051 homes), respectively.
When we talk about the evolution of the real estate market, there are two variables whose importance stands out from the rest: the number and value of transactions. Traditionally, the variation in these quantities (and the evolution of their trajectories) usually defines how attractive it is, in a given place and at a given time, to invest in real estate.
The number of transactions has continued to fall, presumably partly due to the inflationary context, which is directly responsible for the fall in savings and disposable income. But also – in a country where around 70% of real estate transactions are associated with mortgages, and over 90% of which were contracted at variable rates – due to the rise in interest rates.
In other words, it's easy to imagine that in the space of a year, families searching for homes up to €400,000 would have realized, after a conversation with their bank manager or credit brokerage, that they would have to focus on properties priced at no more than €300,000.
To exacerbate this drop in purchasing power, prices are still rising, even though they have slowed down slightly. And note: the rising value of residential property has consistently been above inflation.
That is, in this country house prices continue to rise faster than most other assets. What, in a potentially challenging context (as interest rates rise, the cost of a mortgage increases, which is expected to harm demand and property prices), gives reason to those who continue to believe that residential property is a good investment. As well as those who continue to think that housing is one of Portugal's (and much of Europe's) biggest challenges.
But aren't there any factors that could counteract the appreciation of residential assets? It should be noted that the impact of rising interest rates on the mortgage payments of so many families threatens, at least theoretically, their value appreciation. Someone who defaults (or expects to default) on a payment to the bank might consider selling their house. And they may not be the most patient of sellers.
On the other hand, the government's efforts to prevent defaults are all too obvious: after obliging banks to come up with solutions to lower the repayments of those who have seen their effort rate exceed 36% (for loans of less than 250,000 euros), we now have the discount (or postponement for four years) of the payment of 30% of the Euribor value.
And it is worth noting that since the pandemic and its moratoriums, banks' proactivity in the face of default scenarios seems to have increased significantly.
The previous paragraph brings me to a topic whose importance is much greater than it is usually given credit for: the words we choose.
Because the name we give to a problem impacts how we communicate it and how we act socially, sociologically, and politically in the face of it, and what we're experiencing today in Portugal doesn't seem to be a housing crisis. But something just as frightening: a crisis in access to housing.