Is it a good time to buy a house?

Buying a house: when is a good time? For many people, that's a big question. Interest rates are rising. Inflation is high, energy prices are high. The world is in turmoil. What's the right thing to do? In April 2020 I wrote a similar blog. The coronavirus crisis had only just begun. The world was on fire. Interest rates were rising. Mass panic and an erratic housing market. What should you do?

Contents

• Do your homework
• What do you pay in rent or on your current mortgage?
• Learning from history
• Choose a house with potential
• Raw materials are getting more expensive
• Inflation
• Conclusion

Do your homework

Is this a good time to buy a house? Make sure all your figures are clear and go to a financial adviser. That way you'll know what you can borrow. And stay in touch with the financial adviser. Interest rates are still historically low. Is it smart to fix your interest rate for a long period and, despite the high prices, take advantage of the low rates? After all, it's largely about your monthly costs. Think about your future plans as well. In principle, you buy a house for the long term. On top of that, make a super-nerdy but handy overview. Or download one of the apps such as Gripp. That way you can see exactly what you spend on what. Your trips, eating out, coffees, groceries. It's nice that you can borrow so much, but is that also comfortable? What happens, for example, if you lose your job and only receive 70% of your current salary? Could you still pay for your home then? Do you have a good overview, do you know what you can afford and do you know what your requirements are? Then carry on with your search.

What do you pay in rent or on your current mortgage?

Don't fixate on what comes out of your calculator. What you can borrow and what you want to spend are two different questions. Say you're renting at the moment. Then take a good look at what you pay in basic rent and the additional costs. What does renting ultimately cost you per year, and what are you really 'losing'? Put this in an Excel file and compare it with what you would pay on a mortgage. There are various tools to calculate what you repay and what you spend on a mortgage. With berekenhet you can easily calculate this kind of thing. When you make this calculation, check the current interest rates at the same time. You can also go straight to a financial adviser. They can help you with advice and look with you at what suits you. Have you already been? Then ask whether anything has changed recently. Rising interest rates can make a difference. But so can the fact that you can now count 100% of your partner's salary. Do you already own a home? Then check what you're currently paying in interest and repayments. Also check what your surplus equity is. If you take your surplus equity with you, you may end up in a lower risk category. So you might be able to move to a larger, more suitable home without paying more per month. You'll probably repay more, get a bigger home in return and keep the same monthly costs. WIN-WIN. This could then be exactly the right moment to buy and sell.

Learning from history

In 2008 there was the great financial crisis. We've only just about got past the coronavirus crisis, and now? War in Europe. It never ends. In 2008 there was a crisis as a result of a failing system. At that time, people were allowed to borrow 125% of their home's value. So you could buy a home without any money of your own. In 2008, the average home value in Utrecht was €253,014. At the low point in 2013, the average home value in Utrecht was €212,116. The average home value fell by 16.6% at the time. If you look at the run-up to the crisis (a period of 4 years), in which prices kept rising and there was a great shortage, you'll see that home values in Utrecht rose by an average of 7% a year at the time. If you look at prices from 2008 to the end of 2013, you'll see that prices fell by 10% in total. The scarcity indicator from 2004 to 2008 was between 2 and 3.5. Over the past 4 years, home values in Utrecht rose by an average of 13% a year. The scarcity indicator averages 1.5. So the shortage is even greater.

Source: Brainbay NVM

Worked example: You buy a house now for €450,000 at 2.61% interest. After 6 years you've repaid €75,957. You've paid €49,107 in interest. Suppose the housing market has collapsed after those 6 years in line with the calculation and forecast. Then your home is still worth approx. €349,650. Your debt to the bank is then still: €450,000 – €75,957 = €374,043. You have a residual debt of €374,043 – €349,650 = €24,393

In total, the owner-occupied home has cost you over 6 years: €24,393 + €49,107 = €73,500

In total, the rented home has cost you over 6 years: €16,200 x 6 = €97,200

If you want to be completely fair, also include maintenance on the owner-occupied home at €100 a month. The sum then looks like this: €73,500 + €7,200 = €80,700

After 6 years of decline, buying is still cheaper than renting. If you live there for a longer period, the period of decline will be followed by a period of growth again.

Choose a house with potential

It's all quite nerve-racking. What will the housing market do? Nobody wants to buy at the top. It's much more comfortable to be able to feel richer every month. Unsure what the future will bring you? Then look at the possibilities a house offers. Can you still build up and/or out? Look at the options for, say, a child's bedroom. Is it a house you can eventually turn into your absolute dream home? In these uncertain times, it can be very smart to buy a house with potential. You benefit now from interest rates that are still low. Ask an estate agent about the possibilities. What fits within the zoning plan, what doesn't require a permit and roughly what it would cost.

Raw materials are getting more expensive

Last weekend we were having drinks with a building contractor. The contracts for the new-build project had been reopened. The prices of raw materials had risen by 11%. New-build and existing homes level out in price. If existing homes rise, new-build rises with them, and vice versa. Still, it's about affordability. If demand for new-build falls because of rising prices and people can no longer afford it, construction will be halted. The problem then becomes much bigger. We'll have even fewer homes and the scarcity will increase further. The pressure on the existing market will then be even higher and the problem even bigger.

Inflation

Inflation is rising at a rapid pace. Wages will have to be adjusted to compensate for this inflation. Higher wages mean a greater borrowing capacity. In addition, couples may count both salaries at 100% for the financing. This means more can be financed. More financing means a higher value for homes. On top of that, economists may expect deflation again. With deflation, interest rates will fall again and prices will keep rising.

Conclusion

We can't give any guarantees. If we could predict everything, I wouldn't be typing these blogs any more. I'd be lying in the sun somewhere enjoying myself. At the moment there are still 28,000 serious house hunters. There are approx. 345 homes available. That includes the new-build supply. Right now, prices are still rising. Perhaps slightly less fast than they were. But a 23% increase is, of course, absurd too. We think it's smart to go ahead and buy a home.

Convinced, and want to buy a house? Keep an eye on our listings. Want to sell your home and looking for a good selling agent? One who can win over the hesitant buyers? We'll go all out for you!