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Portugal House Prices Down Again

The Portuguese banks are starting to dump repossessed property onto the market. That will depreciate the price of houses even more.

It's no longer sensible to look for house valuations in the local newspapers. The prices quoted there are usually way out of line with actual deals. In the real market (that means the market where deals are done, not the shop window) prices have dropped by about 75% from their highs of five or six years ago. They are now set to drop some more.

Portuguese banks have at least 20,000 homes for sale that have yet to be advertised, but will be soon. These houses are in addition to the many other properties repossessed or handed back by families that can no longer afford the mortgage repayments. 

It is estimated that the average house price at the moment is around €60,000. How many of you out there thought I was being silly when I said prices had to come down to €60,000 before they hit a reasonable level? The thing is, I have also said that house prices on the way down dont stop at a reasonable level, they just keep going. When house prices went up, they went up much too far, so when they come down, they will come down too far as well. It's that simple.

I estimate prices will fall for the rest of this decade, and then stagnate, perhaps for another decade. There will always be unusual houses that will hold their value, but the average apartment or three bed villa will carry on losing value. There are two problems.

The first is the euro-politicians who are making a right mess of the euro-zone. It gets worse by the year. The only way out is either massive inflation or complete collapse of the system, with countries reverting to their original currencies. I gave my view back in January. This means there will be no recovery in anything until after we have a euro-crash. When that will be is anyone's guess. Two years? Three years? Five years?

As part of that scenario countries like Portugal just cant survive. They are too deeply in debt, and the politicians are turning the country into a business waste-land. If the current trend continues, half the population will be without work within two years. The figure is already around the 20% mark, and government policies are throwing people out of work on a weekly basis. Recovery from this situation is probably a decade away. And that assumes someone can orchestrate a recovery.

There is also no incentive within the country to pull out of the situation, instead the people are looking for non-stop handouts from Brussels. Just this afternoon I looked out across my fields. There were six men supposedly working on the irrigation channels. At 12.30 they downed tools for lunch. At 1.30 they were sitting comfortably on one of the channels. They were still sitting there at 2.30, and at 3.30. You cant run a successful country with a workforce like that.

It's normal for people to start rolling in for lunch at about twenty to twelve, and to be still there at two thirty in the afternoon. They dont want to work, they want handouts. Unless things change drastically the dark ages will be back. However, I dont see any desire for change.

It's not only that, but the annual budget deficit is increasing year on year, and the country borrows more and more year on year. In short, how is a country supposed to pay off debts when they are running a deficit and borrowing more? All they can do is get deeper in debt. Soon the retirement age for kids will be sixteen!

With those scenarios in place house prices can only continue to tank. Next stop €45,000.

As an aside which is probably typical, I looked at a ruin for renovation only this week. Two years ago it was for sale at €100,000. Last year the price had dropped to €50,000. Last week it was down to €30,000, and the agent suggested I make an offer, maybe around €20,000. Does that tell you how things are?

The second scenario that mitigates against any house price rises in the near, or indeed, the medium term, is the sheer scale of building that went on in both Spain and Portugal. The empty, the unfinished, the for sale, the would-be for sale if there was a market, totalled up comes in at the millions. And in Portugal the half-wits are still building. This back-log will not get cleared while the depression is on-going. The sales will only start to trickle along again when things start to improve, and it will take a decade to sell that backlog. So if it takes another five years to hit bottom, and another decade to clear the backlog, maybe you could pencil in 2025 at least for any decent rise in house prices around here. And maybe that is an optimistic view.

And now an important question. How many of you are busy still paying for houses that aren't worth what someone conned you they were worth a few years ago? And that leads on to another question. How many of you will be in a position to buy something really nice when the dust has settled?

I told you all to wait. I hope at least most of you have waited. In ten years time you will have the pick of the bunch, and you ought by then to have the capital to do those deals. But dont keep your money in the bank, you now know just how dangerous it is to leave money in a bank account. Get it out now, and invest in something solid.


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