Is the market cooling down?

After our last publications, it seems that the official confirmations are here.

The market cools down, with a progressive decline in the residential area, even though some segments continue to show relative growth.

Restrictions on access to credit, price hikes, interest rates rising to levels of a few years ago, to which are added increases in the prices of materials and labor in construction and a progressive instability in European markets (and also elsewhere in the world).

With this dynamic, and with the growing propagation in the media for projections related to interest rates and economic activity, among other signs, national individuals are starting to move away from the market and to rethink situations of exchanging or acquiring a new house. .

Indicators confirm drop

Apparently, with all this conjuncture, the market already has declining indicators, such as the execution of new contracts in September 2022.

According to the "Portuguese Housing Market Survey" (September 2022, Confidencial Imobiliário), the national average demand for potential customers has already dropped by more than 15% (in the Porto region, almost 30%).

New additions have fallen a lot, with the national average close to 30%, and in Porto approaching 36%.

Sales expectations fall throughout the territory, with greater expression in the Lisbon region, and with a national average of around 25% (Lisbon 35% and Porto close to 20%).

The domestic market in the residential area is experiencing major declines. And we're talking about September data, now that we're well into November.

Even though some segments may continue to have a positive behavior, such as offices, warehouses and logistics platforms (linked to the business segment), residential sales have already shown a progressive deterioration, which has not even happened with the pandemic.

Scenarios on a not very favorable horizon

It was necessary to accelerate interest rates for the behavior of the market to be reversed, and eventually, to allow a correction of prices that have grown in a speculative way throughout the Portuguese territory.

These were helped by inflation at levels of almost 30 years, and CPI price levels with a year-on-year change of 10.1%, still recently confirmed by the INE.

Only the residential rental market is still resilient, but if the prospects are maintained, it could also embark on a wave of correction of its values. Especially if units that have been allocated to other activities (namely the housing of their owners or the AL) are released to the market.

With this evolution we will certainly see, as expected by the agents linked to the market, a drop in prices and a possible slowdown in construction activity in this segment.

There is an opportunity for the State to invest in affordable housing, as well as in university residences, which have been talked about and promised so much, taking advantage of the pressure that has been felt on the construction side, although the rise in material costs will affect in a lot of candidates and awards.

And now?

With a market in turmoil, a complex economic and social context across Europe, boosted by conflict and the energy issue, the future promises to be complicated for families, where even the values of condominiums rise, in addition to the remaining cost of living, all driven by rampant inflation.

Even with a cooling of inflation, and a possible anemic growth of the national economy (if we are positive, like the Portuguese Government), will the growth of interest rates, which is expected to continue next year to contain inflation, be a potentiator? maintenance of this state of affairs?

As we mentioned in our July post (see it here), with some premonition (and a lot of analysis of potential market and economic developments), inflation and the rise in the cost of living ends up impacting the acquisition market of housing.

Expectations are those that can be conjectured in short-term terms.

Any medium- and long-term assessment has a projection perspective that reassesss scenarios of past financial crises.

Projections or foresight is only carried out by looking for equivalent data and scenarios, since uncertainty does not provide reliable prospects for anticipating certain types of scenarios.

As an example, if interest rates rise in what are the worst scenarios, we will be talking about an even more abrupt brake on credit.

What will the short and medium term future look like?

Complex and full of unknowns. Let's hope that there is a quick recovery and that consumers regain their purchasing power so that the rest of the market reaches a balance.

Do you have an opinion on how the market will behave?

Leave your opinion in the comments.