Portugal, Real Estate Bubble, Yes? No? Discuss

Annual growth rates in home prices in Portugal for the past five years have been above the threshold that the European Commission defines as an alarm bell for a possible price bubble, according to Eurostat.

Bubble, a word dreaded by real estate developers and brokers since time immemorial, is apparently exactly what Portugal’s residential real estate market has been at risk of entering since 2016.

That’s according to data from Eurostat, which looked at house price changes across Europe since 2010.

The European Commission has said that a 6% annual growth rate* is the “alarm threshold adopted in the context of the [Macroeconomic Imbalances Procedure]” that indicates a risk of a real estate bubble. 

That figure isn’t random: the EC based it on “an analysis of historical data on past boom and bust cycles of house prices,” Eurostat says, and that seems pretty solid to us. 

So where does Portugal stand? 

Portugal is the only country in the EU that’s been at risk of a home price bubble for the past five years in a row: home prices rose 6.1% in 2017, 7.6% in 2017, 8.6% in 2018, 8.6% again in 2019, according to Eurostat.

And 2020? 

Well, Portuguese home prices grew 7.4% last year, which was the fourth-largest increase in a decade despite the coronavirus pandemic — although as anyone who’s witnessed the influx of non-Portuguese speakers in certain residential areas of Lisbon would attest, it was likely because of the pandemic (would you rather have been in New York in 2020? Paris? London?)

Only Luxembourg beat us among EU member states, with a 13.3% increase in home prices in 2020 (what gives?), while Croatia tied with Portugal at 7.4% and Slovakia wasn’t far behind, with 7.2%. Spain? 5.6%. France? 4.4%. Italy? 2.2%, but maybe that’s because of all those 1€ and 2€ homes?

* Note: If you want to argue with the real estate tycoon on the barstool next to you about this, know that the Eurostat report is talking about the deflated (or real) house price index (HPI), which is the ratio between the nominal HPI and an index of consumer price inflation. HPI, meanwhile, is “an index that measures the changes in the transaction prices of dwellings purchased by households,” as per this handy glossary from our statistician friends. 

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