The recovery in home buying is expected to continue to be driven not only by expected declines in mortgage interest rates but also by record employment levels in most European economies, a recovery in household incomes, the reduction of household debt and population growth in most countries, particularly in urban areas. But this high demand will once again come up against the lack of houses on the market, as housing construction will continue to be slow due to the lack of labour, bureaucracy and the traditional method taking several years.

It is in this context that the financial rating agency S&P estimates that house prices should continue to rise between 2025 and 2027 by an average of 3%. But they should slow down the increase compared to that recorded in 2024.

This slowdown is quite visible in Portugal: in 2024, house prices rose by 9%, but they are only expected to increase by 4.5% this year, 3.6% next year and 3.2% in 2027. This can be explained by the fact that the lack of houses puts a brake on transactions, as several real estate agents explained to idealista.

On the other hand, there may also begin to be a greater balance between demand and supply of housing in several European countries, generating a less sharp rise in prices. “Mortgage rates continued to moderate during the fourth quarter of 2024. And building regulations tightened to meet energy efficiency requirements, encouraging new home construction. We expect these factors to continue to influence demand over the next two years, while supply constraints are likely to ease,” S&P analysts say.

The fall in mortgage interest rates was a common factor in the 11 European countries analyzed, encouraging the purchase of homes. But there were countries where house prices rose more significantly in 2024, such as Portugal, Italy, the Netherlands, Spain and Ireland.

In Portugal, this is due to building permits having risen to 2009 levels. Although this is a good indicator, the housing supply continued to fail to meet demand, which increased throughout the year due not only to the fall in interest rates but also to the exemption of IMT for young people. Now, demand is expected to grow even more with the public guarantee on real estate credit also aimed at young people up to 35 years old. This is how nominal house prices rose from 7.8% in 2023 to 9% in 2024.