Are house prices really going to fall? Three things to keep an eye on

A fall in house prices: it has been a long time since the Dutch Association of Real Estate Agents (NVM) came with that news during the presentation of their quarterly figures. The last time was in 2019. But on Thursday, the NVM reported a slightly downward trend again: in the first quarter of this year, a house cost an average of 428,000 euros; 2.1 percent less than in the previous quarter.

It is still too early to conclude that the war in Ukraine, rising mortgage rates and higher energy prices are leading to a turnaround in the housing market, said NVM chairman Onno Hoes. The first quarter of the year is often a bit ‘worse’ anyway. It is therefore relevant how the figures develop in the coming quarter. Three things to keep an eye on.

1 The housing offer

Over the past few weeks, a striking number of people have suddenly put their houses up for sale. At the end of the quarter, more than 17,000 homes were for sale; ten percent more than a quarter earlier. It may be that the economic turmoil plays a role in this: home owners are afraid that the market will implode and want to quickly collect the top price for their house. More houses are for sale, especially in coastal regions in North and South Holland.

The NVM compared the increase in supply in March with a ‘normal’ March and with March of 2020. Then the corona pandemic broke out and there was also economic unrest. It can be seen that there are always more homes for sale in March than in January and February. The increase is increasing per segment (under three tons, between three and five tons and above five tons). This is because people who have a house with a garden more often wait to put it up for sale until spring, because it would yield more in a sunny period.

At the start of the corona pandemic, that picture was about the same, except for the middle segment: homeowners with a house between three and five tons more often put their house up for sale. And now the increase in supply in all segments is about twice as much as in a ‘normal’ March. The difference is greatest for expensive houses.

What does that say? It may be, says Onno Hoes, that it has to do with the self-occupancy obligation that many municipalities are introducing. As a result, investors want to get rid of the house they bought to rent out commercially. It is also possible that the completion of new-build projects is taken into account – although ‘only’ 6,450 new-build homes and building plots were put up for sale in the past quarter, the lowest number since 2016. Or – and that must become apparent in the coming quarter – it really is a harbinger of a changing, wider market.

2 The amount of outbidding

The majority of houses, almost 80 percent, are still being sold for a price higher than the asking price. A year ago it was 65 percent. Overbidding is therefore still the norm. But: for the first time in three years, the average difference between the asking and selling price has narrowed, from 9.1 to 8.3 percent. The very bad outbidding, that seems to be a little less.

Brokers also indicate that the number of viewings is decreasing and that viewers are more likely to cancel their viewing appointments. There are also fewer bids. In a very overheated housing market, however, that does not mean a crisis. Homes are still sold at lightning speed, on average in 24 days. And among the often dozens of viewers, there are still enough interested people who make an attractive offer.

3 The price of housing

Anyone who wants to know how the housing market is doing, intuitively looks immediately at the average house price. That makes sense, but that number depends very much on the composition of homes sold in that period. If there are many detached houses, the average house price will logically increase. The region in which a house is located also determines the price.

The square meter price is therefore a better indicator for measuring the temperature on the market. You can also look at the development of house prices per year, instead of per quarter. And with those glasses on, you see the recent decline in perspective: the average house price may be slightly lower than last quarter, but it is still 13.7 percent higher than a year ago. That is a smaller increase than in the past three quarters. At that time, the average house price was 20 percent higher than the year before. For the rest of the year, therefore, no drop in prices is expected, but a moderation of the price increase.

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