House prices in Portugal are expected to fall by 2.1% in 2024, says CaixaBank

The slowdown in the Portuguese property market "is proving to be less pronounced than expected, at least in terms of house prices", according to a study by CaixaBank Research, which has improved the country's growth forecasts for 2023. However, the Spanish bank is not so optimistic for 2024, anticipating a 2.1% drop in house prices. Even so, he believes it will be a "gentle slowdown".

The study points out that the number of house sales fell by 9% year-on-year in the four quarters to Q1 2023, with a greater decrease in existing homes (-10.9%) compared to new builds (+0.1%).

"Although sales are down on the record levels recorded in 2022 (167,900 thousand), they are still 3% higher than in 2019 (154,800 thousand). However, if we look exclusively at the figures for the 1st quarter of 2023, sales in that period (34,400 thousand) fell by 20.8% compared to the same period in 2022, with falls in both existing and new homes (-23.4% and -8.3% respectively)," the study reads.

Housing supply also "continues below demand, taking into account demographic trends", and is suffering from the impact of high construction costs, the document emphasises.

Falling prices and slowing demand in 2024

The Spanish bank recalls that there is a natural "time lag between the action of monetary policy and its impact on the economy", and that in the case of the property market this impact happens in two ways.

"On the one hand, the higher cost of financing discourages a portion of potential buyers who are less able to access credit, which leads them to necessarily look for cheaper homes. On the other hand, the updating of rates for variable-rate loans takes place gradually over time, so the effort perceived by borrowers (as well as a potential decision to sell) is also gradual," he explains, adding that the second half of the year will be important for assessing the impact of the rise in interest rates on the market.

CaixaBank has no doubt that the "resilience of demand, the shortage of new homes and high construction costs will continue to support house prices, even in a context of sharp interest rate rises". However, the outlook is "not so optimistic" for 2024.

The study points to a 2.1% drop in house prices. "One of the main factors behind this forecast is related to the sharp slowdown in demand. This year, we expect the number of sales to fall more than 20% short of the 2022 figure and for this low level to persist into 2024. Double-digit falls in demand for prolonged periods of time are compatible with price reductions, as we have seen in other markets in developed countries," he explains.

Despite this, the Spanish bank is talking about a "more moderate reduction" and considers it "unlikely" that there will be a significant correction in prices like in 2011-2013, "when the country was receiving financial aid and household debt was higher".