The war in Ukraine: a terrible nightmare. In the Netherlands we were mostly preoccupied with our QR codes, petrol prices and inflation. Last week I wrote that in the Netherlands we live too large. Suddenly all things that pale into insignificance next to what is happening in Ukraine. People are fleeing and fear for their lives.
Contents
- The war in Ukraine has a big impact on us
- Russia
- Putin must fail
- House prices are high and prices keep rising
- Saving
- Investing on the stock market
- Inflation, rising mortgage rates and house prices
- Buy now? Or wait until everything collapses
- Extra capital in the housing market
- Refugees
- Conclusion
The war in Ukraine has a big impact on us
Apart from the fact that what is happening is horrific, it is causing unrest throughout Europe. Among other things, the situation in Ukraine is causing enormous turmoil on the stock market. The stock market was already unsettled, but this is making it worse. In general, geopolitical conflicts bring uncertainty, and investors don't like uncertainty.
The conflict in Ukraine is already affecting the oil price. At the moment, prices are rising so sharply that people are hoarding fuel en masse. In some parts of the Netherlands, the pumps have already run dry. And there's a good chance these prices will only keep rising.
Russia
The sanctions packages for Russia will also have a big effect on the European and world economy. Very heavy sanctions packages have been announced for Russia. The sanctions that have been announced:
1. Cutting off access to the main capital markets
With this sanction, the West hopes to hit 70% of the banks and major state-owned enterprises. The aim is to drive up the cost of borrowing and inflation. In this way they can destroy Russia's industrial base.
2. Oil market
A second part of the sanctions package targets the Russian oil market, including refining, which in 2019 still accounted for 24 billion euros in export revenue. The indispensable natural gas, however, is being left alone.
3. Ban on the sale of aircraft and aircraft parts to Russia
This will hit Russia hard, because Russia depends on the EU, the US and Canada for three-quarters of its commercial air fleet. In addition, Europe expects to hit the Russian economy hard by restricting technology transfer and the supply of, for example, semiconductors.
4. Visa restrictions
This sanction means that the elite around President Putin can no longer hide their money in safe places all over the world. Visa restrictions are being introduced for diplomats and businesspeople, who will therefore find it much harder to enter Europe.
EU leaders did not agree on all the sanctions. The international payment system Swift will not be blocked. Several countries fear the consequences for their own economies would be too great.
Putin must fail
Putin has done everything he can to divide the world. He is trying to redraw the map of Europe with great violence. He must and will fail. Unity in Europe is our strength.
House prices are high and prices keep rising
In the fourth quarter of 2021, the average transaction price of a home was €440,790 and house prices rose by approx. 22.1%. A very hefty increase. In the first quarter of 2021, the increase was still approx. 13.8%. But every quarter, house prices in the Netherlands rose a little more. To put it in perspective: in 1976 and 1977 the increase was higher. Back then it was approx. 28% and 28.23%. Even heftier increases, then. And for the complete picture: the price increase from 1973 until now is no less than 1063%.
Mortgage rates are rising
Mortgage rates have risen recently. They are still historically low, but they are slowly creeping up. Over the past month, mortgage rates have gone up by about half a percentage point.
At the start of the coronavirus crisis we also saw interest rates rise. But they soon started falling again, because of the enormous competition in the market. Even so, the pressure on lenders has increased. The rise in interest rates on the financial markets is steep. But mortgage rates are still low. After all, about 10 years ago rates were between 4% and 6%. The lowest 10-year fixed mortgage rate for an NHG mortgage (with the national mortgage guarantee) is currently 1.4%.
Nobody knows how much mortgage rates will rise. It depends on what the ECB does. For years, the ECB has kept interest rates artificially low. Because of high inflation, the pressure is growing to raise the policy rate, as in the US. But for now, the central bank is sticking to its position that inflation is temporary, caused in part by high energy prices. Because of the recently changing situation in Europe, prices may rise faster than earlier forecasts took into account.
Inflation
Inflation is enormous. For now, the central bank is still sticking to its position that inflation is temporary. The huge inflation is mainly due to high energy and oil prices. But with the situation in Ukraine and Russia as it is, this could well get out of hand. At the moment, inflation in the Netherlands is 6.4%. Because of high inflation, our purchasing power is falling.
Personally, I think that now everything has reopened after corona and the coronavirus support has come to an end, inflation will rise further. I can't back that up scientifically, of course. But the pasta at the Spaghetteria has gone from €9.50 to €11.50. An increase of 21%. The fresh tea at the sauna from €3.20 to €4.95. An increase of 55%. Quite considerable. I do understand it, and I wholeheartedly wish it for the business owners who were closed for so long. We have a good income. But you really notice it in your wallet. It's precisely all these small amounts that you feel in your wallet. I know these are huge luxury problems for us. But groceries are getting more expensive too.
Saving
People who save diligently are the ones losing out right now. Savings rates are low. Inflation is high. As a result, savings quickly lose value. So the purchasing power of savings is falling. From €50,651 upwards you even pay tax on your savings. That makes your savings worth even less. If saving costs you that much money, what are you going to do?
Investing on the stock market
The war is horrific. That's one thing that's certain. The uncertainty it brings is also having an impact on the stock market. Considerable nervousness can be seen. People are looking for returns and trying to safeguard their wealth. The stock market crashed. But it recovered slightly when it turned out that Russia would be allowed to keep supplying natural gas and oil. Investors are looking for substitutes for shares, and commodities and bonds are gaining popularity. Excluding Russia from the international payment system SWIFT could have major consequences for the stock market. For now, it has been decided not to impose this sanction. But it's a measure that is still being discussed.
Inflation, rising mortgage rates and house prices
Inflation is reducing our purchasing power. Rising mortgage rates are making homes less affordable. With a higher mortgage rate, the cost of a home goes up. Relatively speaking, mortgage rates are still very low. As a result, a home is still very affordable right now. If you think back to your secondary-school economics lessons, you can hear the teacher hammering home how supply and demand work, and price elasticity. Demand is high, supply is low. Then the price rises.
Supply is only getting scarcer. Municipalities are busy with buy-to-let protection and tightening the rules on house sharing. In addition, around 25 carpenters and around 25 bricklayers leave school every year. Around 50 carpenters and 50 bricklayers retire every year. We have a big shortage of skilled tradespeople, and inflation is driving up the cost of raw materials. On top of that, we have too few places to build, and supply and demand don't match. Moreover, we're living ever larger. So the problem is growing, because demand is only getting bigger. Conclusion: supply can't keep up with demand.
Buy now? Or wait until everything collapses
I expect it's smart to buy a house now and fix the interest rate for a long period. Of course, we don't have a crystal ball either. But precisely because supply and demand are so far apart, and are drifting ever further apart, I expect it's smart to buy a home. Everything is getting more expensive, purchasing power is falling, interest rates are rising. Proportionally, housing is generally getting more expensive. First-time buyers stand even less chance of getting a home. I expect prices will keep rising, but that these increases will be smaller.
Extra capital in the housing market
The uncertainty on the stock market means people are looking even harder for ways to safeguard their wealth. On top of that, money in a savings account is rapidly losing value because of high inflation and the tax on savings returns. Investing the money on the stock market right now feels too risky. Many people will also want to take advantage of the low interest rates while they still can. I therefore expect people to quickly remortgage or increase their mortgage. Pensions are uncertain. People are looking for security.
I expect people will increasingly invest in property. I also expect people to look for alternative forms of financing. And also that parents will make even more gifts and look for financially advantageous arrangements. Even more than they do now, parents will increase their own mortgage in order to provide their children with a mortgage. This is very attractive from a tax point of view.
Refugees
Ukraine belongs with the European Union. It is expected that most people from Ukraine will flee to Poland and Hungary. People from Ukraine can stay visa-free for 90 days in the Netherlands. The Netherlands has indicated that in this situation it will certainly issue and extend visas. They don't need to apply for asylum, but can of course do so. Residents of an asylum seekers' centre are entitled to a living allowance and easier access to healthcare. We therefore expect more people to come to the Netherlands. This again puts extra pressure on the housing market.
Conclusion
To the 'ordinary person' it may seem impossible for house prices to keep rising. Yet with current developments, I expect house prices to keep rising. I don't expect the increase to get even higher in percentage terms, but I do expect house prices to keep on rising. When the coronavirus crisis began, everyone thought my reasoning was odd. In the end, I turned out to be right. I said I expected prices to rise, that our demand would change and that prices would ultimately rise. I was proved right. Of course I don't know whether I'll be right again this time, but when I look at all the figures and developments, I expect a big increase. Would you like advice on buying and selling a house? Then get in touch with us.
