The International Monetary Fund (IMF) revealed today that real house prices in Portugal have doubled since 2015, and that their difference with rental prices has worsened since the pandemic.

In a regional report on Europe, the International Monetary Fund (IMF) notes that real estate markets are showing increasing signs of overvaluation throughout the region, pointing to five countries as examples of this scenario.

"Real house prices have doubled since 2015 in the Czech Republic, Hungary, Iceland, Luxembourg, the Netherlands and Portugal," the report reads.

The IMF staff point out that "since the pandemic, the divergence between house prices and incomes, and between house prices and rents, has increased even more".

According to the accounts of the Bretton Woods institution, house price/income ratios are currently more than 30% above long-term trends, while house price/rent ratios "also far exceed historical norms, including in Northern European economies or emerging European countries.

In this regard, the IMF points out that empirical models point to an overvaluation of 15-20% in most European countries, but with bank rents still rising and real incomes being hampered by inflation, "house prices have recently fallen in many markets".

In the same analysis, it also points out that the rising cost of living and house payments are "stretching" the family balance, which could deteriorate even further if there are more adverse shocks.

In adverse scenarios with higher living costs and higher benefits, around 451,000,000 families - and more than 801,000,000 low-income families - could face greater economic difficulties.

Even so, the IMF believes that "the impacts on banks' balance sheets should generally be contained", but considers that this "picture becomes darker under a combination of shocks, including a large correction in house prices".

"Under the benchmark (Common Equity Tier 1), the capital impairment from rising household debt defaults would not exceed 100 basis points in most countries, but a 20% slowdown in the real estate market would increase losses to a range between 100 and 300 basis points, with Southern and Eastern European countries being the most severely affected," he adds.

In this scenario, such losses could lead to tighter credit standards, increasing the chances of adverse cycles between banks' balance sheets, real estate prices (and other assets) and the real economy. (DN)