Real Estate Market Trends in 2022

At least for Europe...

Last year, there were several trends and changes identified in the real estate sector and many of them indicate to us how the real estate market will behave in 2022.

In fact, with the onset of the pandemic and the consecutive confinements, many thought that housing prices were going to plummet or that demand levels were going to abradate. However, none of this happened, and by 2021 house prices were still rising.

As explained by data made available by the National Institute of Statistics (INE), which indicate that in the third quarter of the year, the Housing Price Index (IPHab) rose 9.9%, 3.3 percentage points more than in the previous quarter.

2022 will be a year of recovery for the real estate market and the outlook of several consultants in Portugal about the future of real estate investment is optimistic.

4 TRENDS AND PERSPECTIVES

After having registered a 10% increase in the price of the square meter in 2021, the real estate market in 2022 promises to continue to rise. An increase is explained by rising demand and inflation.

In fact, if you are also looking for a house, you have already come across the fact that there is not as much supply as there was a few years ago. This is due to the pandemic economic situation the country is going through, and to the materials and labor crisis that is currently being felt.

All these factors have caused prices to rise and consequently a growth in real estate sales in Portugal. But what are, then, the prospects for 2022?

Increase in construction costs

If you have started rebuilding a house or starting from scratch, you probably experienced a difficulty in finding labor at so-called "normal or reasonable" prices before the pandemic.

According to INE, in October, the price of materials increased by almost 9% and labor cost about 5%.

The truth is that the emergence of Covid-19 and consecutive confinements have caused some labor shortages, causing an increase in associated costs.

In addition to this, a shortage in building materials can also be seen. Countless factories were forced to stop or significantly slow down their production processes overnight.

All of these factors have contributed to a further increase in the cost of building houses by 2022 - whether to rebuild or build from scratch.

New mortgage loans with a maximum term of 30 years

In 2021, the Bank of Portugal had already limited financing in relation to the value of the property, as well as the effort rate of each family. But in 2022, it is the time limit.

To give you an idea, in 2020 the average maturity of mortgage loans in Portugal was 33.2 years. This means that there are many people taking out 40-year loans, especially the younger ones.

Thus, the Bank of Portugal has recommended that "the average maturity of all new contracts should gradually converge to 30 years by the end of 2022".

According to Banco de Portugal, gradual convergence is understood as "an annual reduction, tending to be linear, of the differential observed between the average maturity of new loans of 30 years", so that an "abrupt reduction in maturity" of housing loans is avoided.

Potential rise in interest rates

As we know, interest rates are lower than ever. And, for this very reason, it is expected that they will increase. Proof of this is that in November last year, interest rates for buying a house increased again.

According to the National Statistics Institute (INE), the implicit interest rate in credit contracts for house purchase rose 0.821%, up 0.2 basis points compared to October.

The accelerating inflation trend, on the other hand, looks set to last, and may even generate some changes in monetary policies and corrections in interest rates (with an impact on mortgage loans and installments).

Although the European Central Bank has announced that there will be no changes in monetary policy for the time being, it is essential that we are prepared for adjustments to be made in 2022.

Rising house prices

One of the trends in the housing market in 2022 is precisely rising house prices. After seeing a rise in construction costs, an increase in demand and a decrease in supply in the real estate sector, we can say that house prices will continue to rise.

In the first quarter of 2021, house prices increased by 9.9% year-on-year and have been on an upward trajectory due to rising raw material costs and high demand.

In addition to this, the existing imbalance in the market balance (between demand and supply), leads to a continued increase in house prices.

However, although it is possible to have a perspective of what is to come, the truth is that the real estate market is not at all linear. So, if buying a house is part of your resolutions for the new year, know that the important thing is to stay informed.