House prices in Portugal grew 83% in real terms between the beginning of 2013 and the end of 2023, well above the 28% growth in Spain during the same period. The conclusion is from a study published in the Banco de Portugal (BdP) Economic Studies Magazine, which indicates that signs of overvaluation in the residential real estate market in Portugal have been ongoing since the beginning of 2017.

“In Portugal, prices showed signs of overvaluation at the end of 2023, while this behaviour is not observed in the Spanish market”, highlights economists Rita Fradique Lourenço, Afonso Moura and Paulo Rodrigues, in the article “Housing market in Portugal and Spain: Fundamentals, overvaluation and shocks”, which is part of the October banking supervisor’s magazine.

However, this behaviour goes back a long way. “The signs of overvaluation in housing prices in Portugal have been ongoing since the beginning of 2017, in contrast to the behaviour of prices in the Spanish market,” they add.

The authors recall that, in recent years, Portugal and Spain faced similar financial crises and adjustment processes and that house prices in both countries registered contraction, albeit with different magnitude. Thus, between the financial crisis of 2008 and 2013, prices fell, on average (in real terms), 4% per year in Portugal and more than 8% in Spain.

From 2014 to 2023, house prices registered a recovery that reached an average annual growth of 6% in Portugal and less than 3% in Spain.

“Housing price growth in Portugal is, for most of the period considered, driven by the forces of demand, with supply being unable to counterbalance this effect. In the Spanish case, this demand pressure is mitigated by the contribution of supply, particularly in the pre-pandemic period”.

From the beginning of 2020 until the end of 2023, in the Portuguese case, for example, there was a slowdown in residential investment during the pandemic, followed by a “strong recovery (again, driven mainly by demand) in the year 2021”. Subsequently, since mid-2022, the beginning of the restrictive monetary policy cycle initiated by the European Central Bank (ECB) led to a slowdown in both investment and prices, “although by the end of 2023, the latter are already resuming an acceleration trajectory — guided again by the pressure coming from demand”.

On the other hand, “in Spain, since the pandemic period, prices have grown below or within the historical average”, since “initially, supply constraints slightly pressured prices to accelerate, but weak demand counterbalanced this trend”. In the most recent period, “neither demand nor supply has created considerable pressure on prices”, they consider.

In 2023, the median price of family accommodation in Portugal was 1,611 euros/m2, with the sub-regions Greater Lisbon (2,740 euros/m2), Algarve (2,613 euros/m2), Península de Setúbal (1,901 euros/m2), Autonomous Region of Madeira (1,889 euros/m2) and Metropolitan Area of ​​Porto (1,800 euros/m2) recorded values ​​higher than the national figure, according to data from the National Statistics Institute (INE). The most recent information, released in October, indicates that in the second quarter of this year, the median price for family homes in Portugal was 1,736 euros/m2, reflecting an increase of 6.6% compared to the second quarter of 2023.

According to data from the statistical body, in 2023, around 2/3 of the average household expenditure in Portugal was concentrated on costs associated with housing (39.3%).

Institutions such as the International Monetary Fund (IMF) have also warned of the deterioration of access to housing in Portugal. “Housing affordability has deteriorated significantly over the past decade,” the agency said in October, noting that “average mortgage payments now represent 32.8% of average income, up from 23.8% four years ago.”

The IMF points out that “a household with a median income will no longer be eligible for a mortgage loan to purchase a median-priced home in 2023, contrary to what happened in the recent past”, further noting that, “reflecting the rapid rise in housing prices, by the second quarter of 2023, it took 1.5 times the median income to get a mortgage for a median-priced home.”

On the supply side, they argue that it is “essential to address local housing supply shortages to match household demand.” To this end, it recommends “necessary actions to reduce regulatory and administrative barriers and resolve the issue of labour shortage in the construction sector”. And he praises some recent Government measures, such as the “Construir Portugal” program, which “can help address some of the fundamental causes of housing shortages if it is successful in reducing regulatory barriers to construction”.