After a strong rise in house prices recorded over the past year, 2023 brought more moderate price growth in several European Union (EU) countries, with some Member States even showing falls in the cost of housing. According to a report by idealista, this was mainly due to the increase in interest on housing loans and the lower debt capacity of families. But in many countries real estate markets remain overvalued, as is the case in Portugal, warns the European Commission (EC). With Brussels warning that there is a risk of a “future sharper correction” in house prices if economic conditions deteriorate.

Despite the pandemic, the majority of the 27 EU countries experienced “strong growth in house prices”, even in markets that were already overvalued, that is, where house price growth already exceeded – by far – the evolution of income. But at the end of last year, the rise in house prices began to slow down, as interest rates on housing loans increased and inflation began to put more pressure on families' disposable income.

Although “the overvaluation of housing prices began to decrease in many countries” throughout 2023, Brussels warns that so far these reductions are “limited”, with there even being real estate markets that continue to be overvalued, as is the case in Portugal.

“Housing prices are overvalued and continue to rise in Bulgaria, Spain, Latvia, Portugal and Slovenia. In these countries, the evolution of housing prices can be seen as a risk factor for a more pronounced future correction, if economic conditions deteriorate, with housing prices being strongly overvalued in Portugal”. Specifically, the EC chaired by Ursula von der Leyen estimates that house prices in Portugal will grow by 3.2% this year, slowing down to 3% in 2024.


In Portugal, “house prices continue to be a concern”, as they grew by more than 12% in 2022, having for years been experiencing higher increases than family incomes. As a result, house prices are estimated to be overvalued by 20-25%. Despite some moderation in recent quarters, “housing price growth continues in a context of strong demand, including from foreign investors, and a slowdown in the construction of new buildings”, says Brussels.

But there are more serious cases. In countries where housing is “significantly overvalued”, prices have recently fallen, as is the case in the Czech Republic, Luxembourg, the Netherlands and Sweden. Also in Belgium, Hungary, France and Austria, house prices remain overvalued and have recorded slight reductions. In the case of Ireland, house prices have been “rising significantly faster” than incomes since 2013, but have not yet started to adjust.

“In Denmark, Germany and Slovakia, prices are also falling, but the overvaluation is less significant and has been almost completely corrected in Denmark”. And the EC warns that “the evolution of the real estate market poses risks to the global economy in these countries”.

“Sharp correction”

Because of this Brussels estimates that there will be a “new correction in housing prices, especially in countries where sustained price increases were associated with low interest rates”. And the current moderation or correction in prices is expected to continue, since “interest rates on housing loans are expected to remain high and real estate markets have not yet fully adjusted to the restrictions faced by (new) borrowers”, they explain.

Still, the commission led by Ursula von der Leyen believes that the “sharp correction” in housing prices will be “unlikely "There are significant repercussions" in other sectors, such as construction, in most Member States, although they admit that “some economic effects” may be felt.

Compared to the global financial crisis, “the risks to the economy arising from a strong downward adjustment in housing prices are somewhat mitigated by their lesser weight in the economy and by macroprudential measures that limited the pace of growth in housing credit in the last decade in most countries”, explains in the report.