Home sales have been falling in the European Union (EU) in the context of reduced purchasing power and high-interest rates on housing loans. And this cooling in demand has been reflected in the evolution of house prices in several countries, such as Germany, where they fell 10.2% in the third quarter of 2023 compared to the same period last year, according to Eurostat data. As a result, house prices in the EU fell by 1% and in the Eurozone by 2.1%.

But there were also Member States where house prices continued to increase, as was the case in Portugal (+7.6%). According to a report by idealista, in Portugal “the connection between the real estate and credit markets may be less strong than in other countries” since a large proportion of Portuguese people with their own home (around 80% of the population) are no longer paying for housing loans.

This continuous increase in the cost of housing in Portugal led the European Commission to warn that “house prices are strongly overvalued in Portugal”. And there is a risk of “a more pronounced future correction” in prices “if economic conditions deteriorate”.

However, the DBRS agency says there is no housing bubble in Portugal. With the "chronic housing shortage", the low unemployment rate and the increase in net migration, DBRS Morningstar analysts say it is “less likely” that there will be an abrupt drop in house prices in Portugal. For this reason, they believe that “prices are not in a ‘bubble’, but are probably reaching a ‘ceiling’”, they conclude in a new study.

But, in the “medium term, [price] dynamics may change”, which “will depend on keeping inflation under control, leading to a stabilisation of interest rates and the current economic slowdown, particularly in the Eurozone, which should have a relatively short life”.

The end of tax incentives for foreigners could also alleviate the pressure created by the excess demand for international housing. “The recent changes introduced in the tax regime for non-habitual residents, as well as the end of the granting of new golden visas could result in a reduction in external demand for Portuguese properties”, according to DBRS.