An Amsterdam hovel for a barrel or 8. In recent years, that could hardly be called exceptional. The question is: will house prices rise much further or was this it? Last week it was announced that people looking for a home are given more and more choice: there is something more for sale.
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And more supply means that the chance of less rapidly rising or even falling prices increases. In some regions there is already a stabilization or even a slight decline, such as in Rotterdam. This is not yet the case in most regions.
Drop of 14 percent
How different it is abroad. We call Canada. The country’s largest city, Toronto, sees house prices to collapse† The average price at which a house is now being sold is 14 percent lower than in February. Prices in the United States also no longer seem to be rising so fast.
Same picture in Australia. For the second month in a row, the average house price there failed† Finally, we mention New Zealand. Prices there fell by 2.3 percent in the past quarter. That’s the biggest drop in 13 years.
Last year it was still madness in other countries and RTL Nieuws made a video about that:
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What is the cause of these price drops? The key word: interest. Specifically, the interest due to that other keyword: inflation. Because we all know: that shopping cart at the supermarket has become a lot more expensive, your energy bill may have scared you and some houses have become worth a lot.
Inflation is so rampant that it has become a problem. That is why many national banks have raised interest rates. That makes it more expensive for your bank to borrow money. And they pass that on to companies and people who are their customers.
Higher mortgage interest
If you want to buy a house and you knock on the door of the bank, it will ask a higher mortgage interest. You will then lose more money for the same house, because of that interest. And that makes it less attractive to buy a house. Demand decreases, causing prices to fall and thus inflation.
The central banks of Canada, the United States, Australia and New Zealand have already raised interest rates further and more often than we in Europe. The European Central Bank (ECB) is doing so for the first time this month. The interest rate rises by half a percent from -0.5 to -0.25.
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That is not the case with Australia, for example. The interest there will be set for a . next week third time increased to plus 2.5 percent.
America moves on
The US central bank has also gone further than Europe so far. After a number of increases, the interest rate there now fluctuates around 1.75 percent. “As a result, we see the housing market cooling down,” Philip Marey told RTL Nieuws. He is an economist at Rabobank and specializes in, among other things, the American housing market.
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“But because of the interest rate hikes, the United States is heading for a recession. You can normally avert that by lowering interest rates. But that is not possible now, because inflation has to be squeezed out of the economy first.” In other words, it’s either curbing inflation or tackling a recession.
Australian house prices drop 20 percent
That is also a dilemma faced by countries such as Canada, Australia and New Zealand. For the time being, you see that the choice is made to limit inflation. And as a result, Australian experts expect that interest rates could rise as low as 3 percent and that the average house price may drop by as much as 20 percent.
Are these countries a good indicator of what awaits the Netherlands? Somehow, Rabobank economist Nic Vrieselaar told RTL Nieuws. “The mentioned English-speaking countries have the same kind of economy as the Netherlands. With comparable regulations and contracts when it comes to the housing market.”
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You would expect that the Netherlands faces the same fate as the English-speaking countries, but there are also differences. “The interest rate policy in the Netherlands is determined by the ECB, which sets the same interest rate for the Netherlands and Germany and Italy and all those other countries. That percentage can be beneficial for Italy, but not for the Netherlands. While in countries such as Australia and Canada can set an interest rate much more specifically for that specific country.”
It is therefore difficult to predict whether a higher ECB interest rate will actually lead to lower house prices in the Netherlands. Also because it is not clear what will be done with the interest in the rest of the year and whether unemployment will rise or not.
‘Prices will stagnate in 2023’
Vrieselaar says the following about it: “In our most recent housing market forecasts we assume that mortgage interest rates may fall again later this year and that unemployment will rise to a limited extent. In that case, we think that house prices will first rise, but will stagnate in 2023. But if interest rates remain high or become higher and unemployment rises more sharply, we assume (hard) price falls.”
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And then the word that no one is waiting for: housing crisis. That is not excluded. “Once house prices start to fall, many people will wait to buy,” says Vrieselaar. “As a result, prices will fall even faster. That entails the risk of a housing market crash.”
Don’t make the housing market too big
“That crash can then radiate to the rest of the economy. People then have less confidence and less desire to spend money. That is why it is so important that the housing market is not used too much by policymakers to create wealth. risk of contagion to the real economy.”
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The more positive note
It’s not all doom and gloom. Earlier in the article, the expectation of an Australian expert was discussed. He said house prices could fall by as much as 20 percent. But is 20 percent actually a lot?
Nic Vrieselaar: “In 2008, at the start of the great economic crisis, the average house price in the Netherlands fell by about 21 percent. And with that, back to the level of six years before. If house prices now fall by that percentage, then we just go back to the level of January last year.”
“That shows how much prices have exploded in recent years. A decline of about 20 percent could therefore almost be called a healthy correction. And moreover, starters will not be sad about it.”
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