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Portugal House Prices Continue Remaining Stable

The sluggish progress of Portugal’s economy could keep the house prices in their stabilizing state for the coming year or two, says an analysis. The National Statistics Institute (INE), says that the value of house prices per square meter came down to 981 euros during 2013′s first quarter, seeing a slight recovery during the year’s third quarter to 1,019 euros, with a 4 percent increase. A Fitch Ratings analysis says that the house prices’ stability will sustain over the next few years.

The Analysis

The house prices’ stabilization will continue due to two main factors- the nominal house pricing and the disposable income of households with respect to those prices. Property prices in Portugal are among Europe’s cheapest pricing ranges. The disposable income of households has converged with levels prior to the crisis, when compared to the real house pricing.

Prices have seen an overall drop of about 20 percent from their peak value, and it is predicted that the new demand will continue being subdued in the next few years, which could prevent the housing market from recovering.

The Fitch analysis explains that this is governed by two factors. One, the growth in the economy is expected to continue on a sluggish graph, and two, the households’ access to credit will continue being limited due to the banking sector’s deleveraging attempts. The report talks about the housing loans’ NPL ratio, which came up to 2.2 percent during 2013′s third quarter, which was a peak that it had seen from the time the financial crisis had come to the forefront.

The NPL ratios have a correlation with unemployment rates and interest rates on mortgages, says the report. It says, “had the interest rates not been that low, the NPL ratios would have hit a higher peak when compared to their current levels”.

Predictions for the near future

Fitch expects the BoP NPL ratios to settle at about 2.5 percent or so in the next couple of years, along with a slow recovery in employment. It predicts that interest rates will not see a drastic increase in the next few years. It expects the mortgage lending to be tightened further, with reduced lending volumes in the next couple of years. It shows how the housing loans saw a peak during 2011′s first quarter and has seen a decline of 7 percent, since then, due to the banks’ deleveraging process.

The process of supplying new loans, was modified by financial institutions when they adopted stricter credit standards, resulting in a drop in those who qualified to borrow new loans. It also comments on the prepayment rates, that have gradually subsided to an all time low of 3 percent from the time the financial crisis set in, due to financial institutions being a lot less keen on writing new loans along with stricter credit standards.

The prepayment rates will continue to remain at their low levels, due to limited financing opportunities that are available presently. Also, “borrowers don’t have appreciable incentives for them to prepay debts before the schedule, given the current day economic scenario”, it says.

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