Rabobank: House prices still rising, uncertainty growing

Both the number of transactions and the prices of existing owner-occupied homes will continue to rise this year and next. The number of transactions in 2016 is already expected to exceed the previous record level of 2006. Prices are likely to rise by around 5 per cent this year and next, but it is unlikely that such price rises will continue for many years. Furthermore, the recent rise in interest rates on the capital markets following the election of Donald Trump poses a risk to these forecasts. These are the views of researchers at Rabobank in the Dutch Housing Market Quarterly published today.

Various reasons underlie the ongoing recovery in prices and transaction numbers on the housing market. Paul de Vries, senior housing market researcher: ‘The historically low interest rates, growing employment and robust levels of confidence among Dutch consumers are generating rising demand for owner-occupied homes. Mobility is also improving because more and more households are moving out of negative equity. We expect that both the number of transactions and house prices will continue to rise during the coming eighteen months. As far as the number of sales is concerned, we anticipate ongoing growth in 2016 and 2017 to around 230,000 homes, and as regards the house price index we expect an average annual rise of 5 per cent.’
Mortgage rates low, uncertainty growing
During the third quarter of 2016 some EUR 16.4 billion was approved in new mortgages, a rise of 28% compared to the third quarter of 2015. This rise is partly due to the growing number of transactions. Since the volume of new mortgage approvals is greater than repayments on existing mortgages, total mortgage debt is rising further. The election of Donald Trump as the new President of the United States is causing uncertainty about future interest trends. Recently many mortgage providers raised their mortgage interest rates slightly for longer fixed-rate periods. We do expect, however, that mortgage rates will remain relatively low in the coming months period.
Levelling off to a new normal
One of the principal causes of the ongoing rise in house prices during recent decades is the fall in interest rates. Since the early 1980s these rates have undergone structural falls. This effect of interest rates will have worn off this and next year. Rising purchasing power in particular will support price rises in the near future. The question, however, is whether house prices can maintain this pattern of stronger price rises during the coming quarters. De Vries: ‘We expect interest rates to remain relatively low in the coming years too, but not to fall further, bringing an end to the upward effect of interest rate falls on house prices. Coupled with this are the policy changes introduced in recent years, so that structural price rises may also be less pronounced. All in all, these factors lead to the expectation that price rises will level off after 2017. A new normal, where the peak in house prices in 2008 may not be reached.’
The Dutch Housing Market Quarterly can be found at: www.rabobank.com/economics