In recent months, geopolitical unrest has increased once again. Tensions in the Middle East, ongoing uncertainty surrounding the war in Ukraine and political developments in the United States are causing movement on the financial markets. People on holiday in Dubai ended up on a mattress in a car park. The world of luxury, showing once again that safety is the most important thing of all.
Contents
- The role of energy and interest rates amid geopolitical tensions
- The influence of international politics
- A bigger game: the United States versus China
- Why Taiwan matters for our economy too
- Iran and the Strait of Hormuz: this is where we feel it directly
- What you would normally expect
- What is actually happening in Utrecht
- The explanation: a structural housing shortage
- Two forces that shape the market
- Comparison with earlier market phases
- Scenarios for the coming period
- Interest rates are falling slightly, aren't they? Then prices will rise! If only it were that simple
- Conclusion
That may seem far away, but the effects are directly noticeable in the Netherlands. Mainly through energy prices, inflation and ultimately interest rates. And it's precisely interest rates that play a central role in the housing market. We all notice it when we're standing at the petrol pump, and we see interest rates edging up slightly and sometimes edging down again.
Yet the Utrecht housing market currently shows a strikingly different picture from what you might expect given all this unrest. Our diaries are bursting at the seams: lots of demand, little supply and high prices.
The role of energy and interest rates amid geopolitical tensions
The key economic chain is relatively simple. Geopolitical tensions lead to uncertainty on the energy markets. When oil and gas prices rise, that translates into higher costs for businesses and consumers. That feeds through into inflation. A simple economics lesson. It always makes me think of Mrs Kruijf, drawing arrows on the board.
Central banks, such as the European Central Bank, respond by not cutting interest rates too quickly, or even keeping them high for longer. This is how they try to keep inflation under control.
For the housing market, this means that financing stays more expensive. Which is what I keep saying. Higher mortgage rates limit buyers' borrowing capacity and increase monthly costs. In theory, that should lead to less demand and pressure on prices.
The influence of international politics
The current situation is reinforced by geopolitical factors. The war in Ukraine under the leadership of Vladimir Putin has structurally changed Europe's energy supply and remains a source of uncertainty. At the same time, tensions in the Middle East are causing fluctuations in the oil price, which directly affects inflation expectations.
Political developments in the United States, including the course set by Donald Trump, are also contributing to a less stable economic climate. Trade policy, international cooperation and geopolitical relations are coming under pressure once again as a result.
For financial markets, this means one thing: uncertainty. And uncertainty almost always translates into higher risk premiums and interest rates that fall more slowly.
A bigger game: the United States versus China
Behind many of the geopolitical tensions lies an even bigger story. The United States has been the dominant economic and military world power for decades, but China is challenging that position ever more emphatically. Not only militarily, but above all in the areas of trade, technology, raw materials and influence.
You could call it a struggle for global hegemony. Who will set the rules of the world economy in the years ahead?
The United States still has an enormous advantage here: the dollar plays a central role in the international financial system, and America has a great deal of influence over the most important financial markets. China holds different cards. The country is deeply interwoven with international production chains and has a strong position in the processing and supply of critical raw materials.
Precisely because of this, the economy is increasingly being used as a geopolitical tool. America restricts China's access to advanced chips and technology, while China can impose export restrictions on critical raw materials. That sounds like a struggle being played out thousands of kilometres away, but Europe is caught right in the middle.
Why Taiwan matters for our economy too
Taiwan may seem like a small island far away from us, but economically it is one of the most important places in the world. The region plays a central role in the production of semiconductors: the chips needed for cars, phones, computers, data centres and, these days above all, for the enormous growth of artificial intelligence.
Technology in particular has become an important part of the power struggle between China and the United States. America is trying to restrict China's access to the most advanced chips and AI technology. China, for its part, wants to become less technologically dependent on the West.
A conflict or blockade around Taiwan would therefore not just be a military problem. Production chains could be disrupted, components would become more expensive and businesses would once again face shortages. Exactly the kind of supply shock that can eventually end up in our inflation again.
And by now we know what can happen next: higher inflation means less room for central banks to cut interest rates.
Iran and the Strait of Hormuz: this is where we feel it directly
The most direct economic threat at the moment comes from the Middle East. The tensions around Iran have put the Strait of Hormuz centre stage once again. A significant share of the world's oil and gas flows passes through this relatively narrow strait.
And that's where, for the Netherlands, it suddenly becomes a lot closer to home.
When oil and gas become harder to transport, energy prices rise. European gas reserves are also relatively low heading into winter. That makes Europe vulnerable to new disruptions.
Eventually, you see the effect everywhere. At the petrol pump, on the energy bill and in the costs that businesses pass on to consumers.
And that's exactly where it starts to get interesting for the housing market.
What you would normally expect
Based on these factors, you would expect the housing market to cool down. We've seen that picture before, for example in 2022 and 2023, when mortgage rates rose rapidly and the market temporarily calmed down.
After all, higher interest rates lead to lower borrowing capacity. Buyers become more critical, transactions decrease and price increases level off or temporarily reverse.
What is actually happening in Utrecht
In practice, however, Utrecht shows a different picture. The recent figures show a clear increase in transactions. In January, 159 homes were sold; in February this rose to 221 and in March to 328 transactions. In April 391, May 371, June 395 and in July 426. At the same time, prices keep rising, from an average of around €440,000 to well above €470,000.
Selling times are also getting shorter. Homes are on the market for a shorter time on average, which points to sustained demand. The scarcity indicator remains low, at around 1 to 1.5, which means supply is limited relative to the number of buyers.
This combination points to a market that is still on the move and in which sellers keep a strong position.
The explanation: a structural housing shortage
The main explanation for this apparent contrast lies in the structural housing shortage.
Although interest rates and economic uncertainty can dampen demand, the underlying need for homes in Utrecht remains high. The city is growing, households are getting smaller and the influx of new residents remains high.
This creates a situation in which two forces are at work at the same time. On the one hand, higher interest rates put a brake on affordability. On the other, the demand for homes remains structurally greater than the supply. At the moment, that second factor carries more weight.
Two forces that shape the market
The current housing market is best understood as a balance between two opposing forces.
On the one hand there is the housing shortage, which ensures continued demand and upward pressure on prices. On the other there are interest rates, which have a dampening effect on the market.
The result is a market that is still growing, but less explosively than in the years of extremely low interest rates. Buyers are more critical and do their sums more carefully, but they remain active.
We keep following all things geopolitical. It has so much influence on the housing market. Much more than a shortage of houses.
The European Central Bank tries to keep inflation at around 2%. When energy becomes more expensive again and those higher costs seep through into products and services, it becomes harder for the ECB to cut interest rates. If inflation persists, an interest rate rise could even come back into the picture. And homebuyers feel that. It causes unrest and tension.
Mortgage rates aren't set one-to-one by the ECB, but developments in inflation, expectations and the capital market do feed through into financing costs. A few tenths of a percent difference in interest may not seem like much, but on a Utrecht mortgage it can quickly add up to tens of euros a month and affect how much someone can borrow at most.
So suddenly there's a line running from a conflict thousands of kilometres away to the maximum mortgage of a buyer in Utrecht.
Comparison with earlier market phases
The 2022–2023 period shows how quickly the market can react to changes in interest rates. Back then, a rapid rise in mortgage rates led to a temporary cooling.
The difference from the current situation is that the market has since adjusted. Buyers have become used to a higher interest rate and are adjusting their expectations accordingly. At the same time, the housing shortage has grown further, so demand remains structurally high.
Scenarios for the coming period
In the coming period, the development of the housing market will be closely tied to geopolitical developments and energy prices.
If tensions rise further and energy prices increase, this could lead to higher inflation and interest rates that stay high for longer. In that scenario, the housing market will probably cool down, with fewer transactions and more pressure on prices.
If calm returns and energy prices stabilise, there will be room for lower interest rates. That could lead to an increase in demand and further price rises, especially in a city like Utrecht, where supply remains limited.
Interest rates are falling slightly, aren't they? Then prices will rise! If only it were that simple
When we talk about 'interest rates', it sometimes seems as if there's a single dial at the European Central Bank. The ECB turns it down, mortgage rates fall and everyone can borrow a bit more again. If only it were that simple.
Mortgage rates aren't only influenced by the ECB's interest rate. The interest rate on the capital market also plays an important role. And that's precisely where we're seeing unrest again. Long-term rates can rise while the ECB isn't raising its rate at all.
Investors look ahead, you see. How will inflation develop? What will happen to oil and gas? How much money will governments need to borrow for defence, infrastructure and sustainability? And how much risk do they see in all the geopolitical unrest? The more uncertainty and the greater the demand for capital, the higher the interest rate investors may demand.
That's exactly why the current geopolitical situation is interesting for our housing market. A conflict in the Middle East can drive up energy prices. Tensions between China and the United States can disrupt trade and production chains. Meanwhile, European countries are spending billions extra on defence. All of these developments can ultimately hit our mortgage rates via inflation and the capital market.
And there's another unpleasant side to it. A higher interest rate doesn't just make your mortgage more expensive, but also the building of new homes. After all, property developers, investors and housing associations have to borrow money too. If financing becomes more expensive, some construction projects become harder to make financially viable.
This creates a peculiar contradiction. A higher interest rate slows demand, because buyers can borrow less. But that same higher interest rate can also slow new supply, because building becomes more expensive. And if there's one problem Utrecht doesn't have, it's a surplus of houses.
That's exactly why rising interest rates don't automatically mean that house prices in Utrecht will fall. As long as many more people are looking for a home than there are new homes being added, those two forces will keep working against each other.
Conclusion
Geopolitical tensions clearly influence the housing market, mainly through energy prices, inflation and interest rates. Yet the Utrecht housing market shows that these factors aren't the be-all and end-all.
As long as the housing shortage remains large, the demand for homes will remain. That keeps the market resilient, even in an environment of higher interest rates and international uncertainty.
The direction of the market is therefore increasingly determined by the combination of global developments and local scarcity. And it's precisely that combination that makes the current housing market complex, yet at the same time surprisingly stable. Looking for a home or want to sell your home? Then get in touch.
