What impact do the shrinking German economy and Trump have on our housing market?

The Dutch housing market sometimes feels like a rollercoaster: high prices, little supply and ever-changing interest rates. More and more often I hear: ‘I don't know, I find everything around Trump a bit scary’. Or: ‘The German economy is shrinking and our economy really does depend on it’. But will we notice that on our housing market? What influence does it have? The blog ‘Is the housing market really cooling down’ is being read a lot again. But the figures in Utrecht are rising sharply, and after a very, very, very slight dip, prices are already rising sharply again. I went to investigate, because what should we be advising our clients now?

The German housing market: slump or time to seize opportunities?

Germany's housing market has taken a hefty knock in recent years. Rising interest rates made house prices plunge by 8.4% in 2023, the biggest drop since 2000. In some regions prices even fell by 10% to 20%, the strongest correction in decades. Stricter lending rules made it harder to buy, and investors kept their purse strings tight.

Historically, the German housing market has seen fine growth, but in 2023 and 2024 we see the impact of higher borrowing costs and economic uncertainty. German property prices fell by an average of 5.8% year on year in the fourth quarter of 2023. Yet at the end of 2024 we already saw slight growth again.

At the same time, Germany is struggling with a housing shortage, despite a shrinking population. This is due to an increase in the number of households and demand being concentrated in urban areas. The construction sector is lagging behind, so the shortage will probably keep growing. Could the housing market there come under more pressure again as a result? The housing market there fluctuates less anyway.

What does this mean for the Netherlands?

Although Germany and the Netherlands have completely different housing markets, there are also points of overlap. In Germany, the majority of the population rents. In the Netherlands, there are hardly any mid-market rental homes left. And much more importantly, in Germany you can't finance 100% of the home's value. As a result, buyers have to put in much more of their own money. This makes for a more stable market.

1. Interest rates are still the boss The biggest factor on the housing market? Mortgage interest rates. The European Central Bank (ECB) sets the rules of the game for both the Netherlands and Germany. And yes, when borrowing becomes more expensive, house prices fall. But this is a broad European phenomenon. Still, we saw today that the 10-year interest rate swap in Germany had its biggest rise since the fall of the Berlin Wall. This could cause house prices to fall somewhat again. But also mean that interest rates in the Netherlands may rise somewhat.
2. Dutch exports are tied to Germany Germany is our biggest trading partner. When the German economy is having a hard time, we notice it in the Netherlands. Fewer exports mean less growth, less purchasing power and, in the end, less movement on the housing market. Even so, we still expect growth in the economy in the Netherlands.
3. Cheaper living just across the border? More and more Dutch people are moving to border areas such as Kranenburg and Emmerich, where homes are bigger and more affordable. This could ease the pressure on the Dutch market in these regions somewhat. Gé and I both come from a border area, and there you see even more that people are considering living in Germany.
4. Investors are looking beyond the Netherlands Property investors are looking for returns. Now that German prices have fallen, Germany may become more attractive again, which could ease the pressure on the Dutch market somewhat. The Dutch property market and the government are unreliable. As a result, you see investors looking for other alternatives. Dubai, the UK, Spain, but also Germany are popular.
5. Germany has a stricter policy Germany has the ‘Mietpreisbremse’ (rent brake) to limit rent increases. However, this has been the case for a very long time. In the Netherlands we tried to introduce a similar law, but because this came far too late and the maximum rent and the costs are no longer compatible, you see that here it has led to homes being sold off.

So will prices keep rising in the Netherlands, and is it really such a safe investment?

There is a lot of optimism about the Dutch housing market. If we look at the figures in Utrecht, we really see enormous madness. Our inflation is high, interest rates keep falling a little. There is a huge shortage on the labour market, and we Dutch can borrow a crazy amount for our homes. So it could well be that we are now creating a bubble compared with other countries. I wrote earlier about the solutions for the housing market. The most important factors that could cause a drop:

• Low mortgage interest rates: mortgage rates are actually artificially low right now. This means we can borrow an enormous amount. Because we can borrow so much, house prices rise. In the Netherlands in particular, we are very dependent on interest rates. You saw that in 2022 and early 2023. When interest rates rise, prices fall.
• Influence of inflation: If inflation rises and central banks raise interest rates, mortgages become more expensive and demand for homes may fall. So in fact it comes down to interest rates again.
• Changing central bank policy: Should the ECB decide on additional rate rises, this could lead to a drop in house prices. In Germany, interest rates have gone up. The Netherlands may follow. This has a direct influence on our housing market.

And Trump? What does his policy mean for our housing market?

Trump's policy continues to influence the world economy, and so us too. I find him a scary little man, but what does it mean for us? What are the main points to watch?

1. Trade restrictions and exports Trump has a protectionist policy and is threatening higher import tariffs. For the Netherlands, a country that relies on exports, this could hurt. If the US buys fewer European products, we'll notice it directly in our economy.

2. Germany is hit extra hard The German car industry in particular could take serious blows from American trade restrictions. And when the German economy suffers, we feel it too.

3. Interest rate developments in the US The American mortgage rate is an interesting barometer. At the moment rates there are between 3.5% and 4.5%, while in Germany a 10-year mortgage is around 3.8%. This difference shows how different monetary policy is in the US and Europe. The Federal Reserve's choices also influence the ECB, which ultimately feeds through into our mortgage interest rates. In the Netherlands, mortgage rates are now between 3.3% and 4.2% too. The rates are fairly comparable. So you can see there's a connection.

Respond to Trump's import tariff increases?

Recent research advises not to respond immediately to the import tariff increases announced by Trump. Although these measures could seriously damage the American economy, the impact on the Netherlands remains limited. You don't want a counter-reaction to cause a severe effect. That could easily bring down the American economy. And that in turn has consequences for Europe.

What does this mean for the Dutch housing market? A possible weakening of the American economy could lead to global economic uncertainty, which in turn could affect consumer confidence and the willingness to invest in the Netherlands. The euro is already stronger than the dollar again. Nice if you've just booked a trip to the USA;) Less so if you own American shares. Global economic uncertainty could result in a cooling of the housing market, with a possible stabilisation or even a fall in house prices. But we're nowhere near that yet. Prices are currently rising at a rapid pace.

An update on 11 March 2025

What does the American economy mean for us in the Netherlands?

That man with the orange face on the other side of the ocean has an influence on the world economy. Just now at the hospital I heard that someone had given up his American nationality and travels via Canada when he visits his family, because he's afraid of Trump. Developments in the United States are unfortunately not something happening far from our bed. Although I do like to pretend they are. Decisions by the American Federal Reserve on interest rates have a direct impact on European financing costs, and therefore on our mortgage rates. Rising interest rates in the US could mean the European Central Bank cuts rates less quickly, which makes homes more expensive for buyers.

In addition, international capital flows play a role: if American investors find attractive returns at home, this could reduce the investment pressure on the European and Dutch property markets. This could slow price rises, but also lead to fewer new-build projects. But are the Americans still investing that much in the Netherlands with the Affordable Rent Act?

Political uncertainty in the US, whether about trade measures, economic sanctions or presidential elections, also affects confidence in the market. And in a world where capital and investment know no borders, we feel those effects here just as much.

Trump's strategy: national debt and interest rate cuts

The United States faces the challenge of refinancing $7 trillion of national debt within six months. With today's high interest rates, that would be a costly undertaking. Trump seems to be considering creating economic uncertainty, which would bring interest rates down and make refinancing the national debt cheaper. Trump is of course quite a character and knows very well how the economy works. But suppose interest rates drop sharply, that could mean our house prices go completely sky-high.

By ramping up trade tensions or introducing new import tariffs, for example, investors can be encouraged to flee to safe havens such as American government bonds. This increases demand for these bonds, which automatically brings interest rates down.

Consequences for the Dutch housing market

1. Mortgage interest rates could fall: If American interest rates go down, this could put pressure on the ECB to cut rates as well. This could lead to lower mortgage rates in the Netherlands.
2. Investor behaviour changes: Economic uncertainty could make investors invest less in property, which puts new-build projects in the Netherlands under pressure. But this could also mean that we get even fewer rental homes, and fewer homes in general, so that prices of the existing supply rise even further. Less investment in the property sector could shrink the supply of rental homes further. This really means the death blow for people looking for an affordable rental home.
3. Influence on the construction sector: Trade restrictions and sanctions could lead to higher costs and delays in the supply of building materials. This could push up construction costs further, making property developers slower to build new homes. This too will make house prices rise considerably.

But this unrest could also lead to higher interest rates. The ECB actually wants to rein in inflation a little. Interest rates already went up today, and ABN Amro bank is doing the same tomorrow. But hold on, then interest rates are just as high as two weeks ago. Interest rates would really have to take big steps up for this to do anything to our house prices.

So why are mortgage interest rates suddenly rising now?

Dutch banks are currently raising their mortgage rates, even though there are signs that American interest rates could fall in time. And that this would suit Trump very well. This seems contradictory, but there are several reasons why this is happening:

1. Higher capital costs for banks: Banks don't base their mortgage rates only on the ECB rate, but also on rates on the capital market. In recent weeks these rates have risen because of uncertainty about the ECB's future monetary policy and geopolitical tensions.
2. Changing risk profile: Because of the economic uncertainty, possibly caused by Trump's plans, banks are adopting a more cautious policy. This may lead to higher risk premiums, which they pass on in their mortgage rates.
3. Temporary market correction: Banks are anticipating a possibly volatile period, in which uncertainty and high risk premiums first lead to a rise in interest rates before a fall can take place.

What happens if Trump forces interest rates down?

If Trump's strategy succeeds and he manages to get interest rates in the US down, this could set off a chain reaction:

• American interest rates fall, which may bring European capital market rates down with them.
• This could put pressure on the ECB to cut rates faster too.
• Lower capital costs for banks could eventually lead to a drop in mortgage rates in the Netherlands.

But timing is crucial here. Banks may now temporarily raise their rates as a precaution, while in the longer term a fall is still possible if rates on the capital market stabilise or fall.

Conclusion

Do Trump and the German economy have a big influence on our housing market? Yes and no. The German economy does influence our housing market, but only indirectly. The real game changer? Interest rates. And those are largely set by the ECB. In the meantime, we need to keep an eye on Trump's trade measures. Inflation and interest rates really determine the prices on our housing market. Too little is being built. So the pressure is increasing. Our country is ageing and there is ever greater pressure on the labour market. I would still definitely buy a home myself right now. But keep a close eye on interest rates, and do your buying and selling within the same time frame. Take a look at our listings.