Rabobank expects even higher price hikes on the Dutch housing market

Prices for owner-occupied homes in the Netherlands rose on average by 7.6% in 2017, and are expected to rise even faster in 2018. This is what economists of Rabobank write today in their Dutch Housing Market Quarterly. They expect houses to get 8% more expensive in 2018 and 7% in 2019. This means that in 2019 the average owner-occupied home in the Netherlands will cost some 300.000 euros. This isn’t all good news: not only can it make owning a home less attainable by a growing number of potential first-time buyers, it could also lead to higher debts for households.

Senior housing market economist Christian Lennartz explains: ‘We know from data from the Dutch Land Registry that an increasing share of buyers does not need external financing to purchase a home. But those who do rely on mortgages will find that they have to loan more money to keep up with rising house prices. This can also make such households more vulnerable to economic shocks.’ For the latter the economist points towards the high interdependency of the Dutch economy and the housing market, meaning that a downturn in the economy can have large effects on the housing market. And the reverse holds true as well, which became painfully clear between 2008 and 2013: a housing market slump can strengthen economic crises.

Strong sales increase, especially outside the largest cities

Rising prices are a welcomed though by homeowners who in previous years had to postpone their plans to move to a new home, because they still had an underwater mortgage. Now that the market value of their house is higher than their mortgage, it is getting easier to relocate. This could help explain why in 2017 the number of sales has risen dramatically in regions where prices have increased more gradually in the past years than in the large cities. In provinces like Gelderland, for example, the number of transactions grew almost 19% year-on-year. In the Netherlands as a whole about 242,000 homes switched owners, compared to 215,000 in 2016. Lennartz: ‘We expect sales to keep increasing in 2018 outside the “Randstad” region in the west of the country, but do expect stagnating or even declining sales in the large cities.’

Demand for owner-occupied homes remains strong

The two effects combined are expected to lead to moderately increasing sales in 2018 of about 250,000 homes. Lennartz: ‘Propensity to move is high among the Dutch and has even increased a tad in the past quarters. Combined with interest rates that are still relatively low, we expect demand for homes to remain strong. Supply is dwindling however, but we feel that the mismatch between the two will manifest itself in higher prices, not yet in declining sales.’ According to the economist the number of sales will start to drop when affordability will deteriorate so far that large groups of potential buyers will run into financing limits. This scenario isn’t expected until, at the soonest, 2019.

Read the entire Dutch Housing Market Quarterly here: www.economics.rabobank.com

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