As interest rates on housing loans keep rising due to the increase in Euribor rates, the European Central Bank (ECB) estimates that housing prices in the Eurozone countries as a whole will fall by up to 9% in the next two years.

After reaching historic lows in 2021, “home loan rates in the Eurozone have risen significantly since the beginning of 2022,” said leading economists in an article published in the ECB's latest 'Economic Bulletin'.

In the first quarter of 2022 alone, interest rates on mortgage loans saw the largest half-year increase ever recorded, and “the dynamic of the property market is very sensitive to mortgage rates”.

According to the experts, home loans will have an effect on both property prices and real estate investment: an increase of one percentage point in mortgage rates causes a 5% drop in house prices after two years, as well as an 8% drop in real estate investment.

In a non-linear projection considering greater price sensitivity, the impact of the one percentage point increase in interest rates doubles. In a low interest-rate environment, the estimated drop in house prices and housing investment is around 9% and 15%, respectively, after around two years.

However, changes in housing preferences brought on by the pandemic may somehow “counteract” the effects of rising interest rates and therefore help explain “part of the resilience observed in the Eurozone real estate market”, added the authors.

While there's no crystal ball to predict when the real estate market will turn, expert local advice is valuable. Contact the team at Algarve Home Sales to discuss your investment plans.