Portugal has the most “overvalued” or “overheated” housing market in all of Europe, with deviations in prices from market fundamentals far exceeding the mismatches seen in countries such as Sweden, the Netherlands, Austria and Greece, the cases of greatest “stress” detected by the European Commission (EC), in a new study published this Tuesday, which accompanies the new “European Affordable Housing Plan”.
This overheating of housing in Portugal is one of the phenomena, apart from poor supply and construction, that explain the serious problem that the country (families, especially younger and less wealthy ones) faces in terms of affordable housing, considers Brussels.
According to the most recent data available, “house prices remained overvalued in several European Union (EU) countries in the second half of 2025”, says the EC.
According to the new study, “we estimate that the average overvaluation is more substantial in Portugal, in the order of 25%, surpassing other overheated property markets, such as Sweden, Austria and Latvia”.
“House prices are estimated to be overvalued by between 10% and 20% in Luxembourg, the Netherlands, Austria, Greece, Czechia, Sweden and Latvia, although the estimated overvaluation will have decreased in all these markets, except the Netherlands, in 2024”, indicates the same work by the Commission’s team of experts.
Worse: “The current trend in the real estate market is expected to continue in 2025 and increase overvaluation in several Member States.” In Portugal this is certainly happening, as shown by the aforementioned EC estimates.
“Several assessment measures indicate that house prices are overvalued in several EU countries, which poses a risk of price corrections”, and “there are different measures to assess whether a property market is overheated, that is, whether house prices are excessively high”.
“Overvaluation is a phenomenon with two faces. For current owners, it generates a temporary increase in assets that can be exploited; however, it also induces the risk of correction in house prices”, that is, if it is excessive it can cause the market to implode, bursting the bubble.
Additionally, and no less important, “for potential buyers, overvaluation represents a substantial obstacle to entry into the market, worsening accessibility”.
However, the Commission continues, “overvalued prices do not guarantee that they will decrease – and, if they do, how quickly – if there is a structural gap between housing demand and supply”.
Thus, “institutions use a diverse range of methods to evaluate real estate markets, reflecting the complexity and variation in the dynamics of these markets.”
The Commission’s estimates of house price valuation gaps are derived from the price-to-income ratio, the price-to-income ratio and the regression valuation model, and are averaged to estimate an overall valuation gap at the national level,” the experts explain.
The EC also concludes that “house prices have recently decreased more intensely in countries where they were more overvalued, such as Luxembourg and Sweden”, the ranking in which Portugal is the European champion.