House prices in Portugal 2023: values may fall by up to 3%

Will house prices drop in Portugal? Will houses be cheaper in 2023? The residential real estate market in Portugal remained resilient throughout 2022, despite the challenges posed by the war in Ukraine. Even with high inflation and sharply rising mortgage interest rates, people continued to buy property in Portugal and house prices rose. But as interest rates rise, so does the risk of a price correction. So, what about 2023? According to the Portugal property market outlook 2023, Moody's has stated that house prices in Portugal in 2023 could fall by as much as 3%.

Portugal house prices 2023

"The risk of a correction in house prices has increased as inflation accelerates, interest rates rise and economic growth slows," says the financial rating agency, which admits that, in some markets, there are "large risks of price corrections", mentions the Portuguese online economic newspaper ECO.

With regard to house prices in Portugal, Moody's estimates that the growth of house prices regarding property for sale in 2022 reached 13.9%. Will house prices drop in Portugal in 2023? The rating agency forecasts that house prices could remain stable at 1%. But it also admits a price correction scenario, in which prices could fall by up to 3%.

House price correction expected across the globe

Beyond Portugal's borders, some countries in Europe and around the world will not escape the house price correction, according to Moody's estimates. This is the case in:

• Germany: house prices are estimated to fall between -1% and -4%;
• UK: house prices are expected to vary between -3% and -8%;
• USA: on the other side of the Atlantic, prices are expected to fall between -3% and -8%.

Global economic growth to slow, but banks to benefit from high interest rates

Moody's outlook points to a "slowdown in global economic growth in 2023", with "high inflation, geopolitical shifts and financial market volatility hurting households and businesses", with "a substantial risk of further shocks in the future".

But as far as banks are concerned, the rating agency admits that financial institutions could benefit from "solid earnings" in 2023, with rising interest rates and strengthened balance sheets to counter the global economic slowdown.

"Global banks will be protected from rising bad debts in 2023 by rising interest rates and strong buffers, and the outlook for the sector remains stable," Moody's Investors Service says in the report published in early December.

"Despite the weakened and more volatile macroeconomic environment, banks will report solid earnings in 2023," according to Edoardo Calandro, Moody's senior vice president for credit.

"Rising interest rates will allow for continued capital generation on top of already strong capital, while liquidity and funding will remain solid, even as dismal economic conditions in much of the world lead to deteriorating loan yields.

According to the rating agency, banks in North America, the Middle East, some Western European countries and Asia-Pacific (excluding China) will benefit most from higher rates.

Non-performing loans are likely to be higher in highly 'dollarised' emerging markets, while many banks in energy-producing countries will benefit from higher oil prices. According to Moody's, credit losses will be contained by tighter credit access standards adopted over the past 10 years, lower exposure to riskier asset classes and higher provisions made by banks.

Deposits are likely to remain well above pre-pandemic levels for at least the next 12 to 18 months and debt redemption requirements are now largely met in most advanced economies. This, together with the strong starting position, means that banks will remain well funded through 2023, even as central banks continue to drain liquidity," add's the ratings agency.