Is this the right time to buy a house?

For many people this is a big question right now. The search had already started. Actively keeping an eye on what's for sale. Viewings, missing out again and again, and now there's the coronavirus crisis. What should you do?

Contents

• Get an overview
• What do you pay in rent?
• Learn from the last crisis
• Compare your mortgage at different interest rates
• Choose a house with potential
• Selling your house and buying a new one
• Construction during the coronavirus crisis
• The housing market in China
• Conclusion

Get an overview

Make a nerdy overview. My father once made me do this when I applied for my first job. Because a gross starting salary sounds like quite a lot. But quite a lot goes out again too. Including on fun things. What comes in every month and what goes out? Go through your bank statements. You have fixed costs, of course. But don't forget to include the coffees on the corner, your shopping sprees, the cost of holidays, weekends away etc. What is left over each month? What happens if you only get 70% of your salary paid out? Could you then save a bit on luxuries and still pay your fixed costs? If so, you know you won't get into trouble should your boss have to apply for short-time working for you during this crisis.

What do you pay in rent?

Don't just look at what you can borrow. Once you have worked everything out, look at what you can or want to pay towards a mortgage. But distinguish between the basic rent and 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 spend on a mortgage. Via berekenhet, you can easily calculate what you repay and what your mortgage costs you per month. First check the current interest rates when you make this calculation. Even better is to go to a financial adviser. They can advise you and look at what suits you. Have you already been? Then ask whether anything has changed recently. For example, if you work on a commission basis or as a freelancer (ZZP’er).

Learn from the last crisis

This crisis cannot be compared with the crisis of 2008. That was the result of a failing system. People were still allowed to borrow 125% of their home's value. Homes were easier to finance. If we look at the housing market in that period, we see the following. 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. In this severe crisis, home values fell on average by 16.6% from peak to trough. Then there was the run-up to it (the 4 years before the crisis), when prices kept rising and there was a great shortage. The tightness indicator was then between 2 and 3.5. In that period, home values in Utrecht rose by an average of 7% a year. If you look at it from the start of 2008 to the end of 2013, home values fell by 10%. Over the past 4 years, home values in Utrecht rose by an average of 13% a year. If you then want to calculate your risk on the basis of past figures, you arrive at about 22.3%. Since 2016 the tightness indicator has been between 2.3 and 1.3. So the shortage is even greater than in 2008.

Source: Midas NVM

Worked example: You buy a house now for €450,000 at 1.75% interest. After 6 years you have paid off €84,948. You have paid €12,372 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 about €349,650. Your debt to the bank is then still: €450,000 - €84,948 = €365,052. You have a residual debt of €365,052 – €349,650 = €15,402.

In total, the owner-occupied home has cost you in 6 years: €15,402 + €12,372 = €27,774

In total, the rental home has cost you in 6 years: €15,000 x 6 = €90,000

If you want to be completely fair, also include maintenance of €100 a month for the owner-occupied home. The sum then looks like this: €27,774 + €7,200 = €34,974

The break-even point is at a fall of about 31.11%. So the value of the home can still fall considerably before staying in a rental home becomes more advantageous. What's more, if you want to move on to a bigger home after this, a price fall on that more expensive home is of course worth more in cash terms.

Compare your mortgage at different interest rates

The economy is going to take a hit. That's one thing that is certain. Interest rates are rising very slightly. But suppose the rise speeds up. Is it then more advantageous to benefit from the low rate now and perhaps pay just a little too much? Will you be better off at the bottom line? At 3.5%, for example, what does that mean for your repayments, your borrowing capacity and your monthly costs? In the image below you can compare the repayments, costs and monthly amount with 1.75%

Choose a house with potential

Do you find it all rather nerve-racking? Are you unsure about what the future will bring? Then choose a house you won't need to leave for a while. Go for a house you can extend & perhaps build on top of. 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 from the low interest rate now. If we have to stay indoors for longer, no worries. You already have a lovely home. If your career keeps taking off like a rocket, you can extend your lovely place. Ask an estate agent about the options. What fits within the zoning plan, what can be done without a permit and roughly what would it cost?

Selling your house and buying a new one

You have a lovely house, but you also have plans to buy a new home. Should you stay put where you are right now? Maybe the housing market will collapse…. Doubts, doubts, doubts. Financially, a lot can change for you. Thanks to healthy home equity, you may not even need to add that much for the new house. And thanks to a lower loan-to-value, your mortgage rate is lower too. On top of that, you simply want more living comfort. Check whether you can keep paying for the home if you have to make do with less. In Utrecht it's still better to buy a home first and then sell. The search can take longer. But bear in mind that the market may become unsettled. Be a little cautious when estimating the value of your current home. Take 90% of the expected sale price or valuation. Then you're safe. Does the market stay as it is now? Then you can make extra repayments or renovate your new house.

Construction during the coronavirus crisis

Cobouw wrote an article saying that construction is not immune to the coronavirus crisis. Many migrant workers have gone back to their own countries. That's also why asparagus is so expensive right now, because there are no seasonal workers to harvest it. If you're out of work at the moment, call the farmer! But back to the point. Construction is being hit too. Many projects have come to a standstill. Especially the zero-on-the-meter (energy-neutral) homes with lots of subsidy: those subsidies will soon be cut. The government now has to step in for many sectors. Businesses are having a hard time. Many people in construction are forced to stay at home. As a result, construction is falling behind schedule. Companies don't have enough reserves and there will be rounds of redundancies. Less subsidy will also mean even less construction later on. Demand in Utrecht is enormous. The number of new-build homes was already lagging far behind. The nitrogen policy only made this worse. We noticed this in Utrecht through an even greater shortage and an even sharper rise in prices. Won't demand become even greater later on? Nobody knows.

The housing market in China

Because of the lockdown in China, the housing market there had collapsed completely. Prices were 24% to 50% lower than in February and March 2019. Now that everyone is slowly being allowed out again, the number of sales has tripled. This is partly because new-build projects had a capped sale price imposed by the government during this period. But also because demand for homes has not decreased.

Conclusion

Of course I can't give any guarantees here. If I could predict everything, I'd be filthy rich. But I think it's important to look at what the options are. What do you spend, what does the mortgage cost you and what are the possibilities of a new house? At the moment there are 33,750 people searching. We have 1260 homes for sale. This includes new-build homes. If we only look at the available supply, we have just about 600 homes for sale in Utrecht. So the pressure is extremely high. Even if a lot of people lose their jobs, demand is still high. Do what feels right. Because if the virus is under control before the end of the year, the rise may well continue or prices may stabilise. At the moment, house prices are still rising. So perhaps your calculations are for nothing and after a few years you'll have very healthy home equity.

Worked it all out? Do you still want to buy your little palace now? Perhaps one with room to extend? Keep an eye on the listings. Do you want to sell your home and are you looking for a good selling agent? One who can win over hesitant buyers? I'm on it!