Will house prices rise again? Will the breeze keep blowing over the housing market? Questions that are on all our minds. The housing crisis is huge, but so is the uncertainty. On 5 August I was invited onto a podcast. Back then the figures were different. We were seeing 2 to 5 viewings per home. But now those numbers are rising again. How is that possible? And should you switch off your emotions and buy a home right now?
Contents
- Supply is falling slightly
- Interest rates are falling slightly
- We are ignoring demographics
- Inflation
- Changing regulations
- Conclusion
Supply is falling slightly
For weeks on end, supply increased. People went into panic mode. Putting homes on the market as quickly as possible, which caused an enormous increase in supply. More choice means less pressure. Now the exploding supply is slowly easing off. At the moment we have around 24,750 serious house hunters in Utrecht. In addition, there are currently approx. 1,170 homes for sale, including new-build homes. That is about 100 homes fewer than last month.
A logical explanation for fewer house hunters is rising interest rates. Because of rising rates, it is no longer so attractive to keep moving to bigger homes. Last year, for us, it was still favourable to buy the house next door. That house was about €150,000 more expensive, but per month the difference was only €300. That made it attractive for many people to keep moving to bigger and more luxurious homes. Those house hunters have dropped out. On top of that, uncertain house hunters are also taking a step back for a while.
Interest rates are falling slightly
Fixed mortgage rates are falling and will probably fall further in the coming weeks. However, market rates are slowly rising again. Mortgage rates are based on market rates. But mortgage lenders' margins are high at the moment. So there is still room for them to fall further. Even then, they can work with a healthy margin. Cuts generally happen more slowly than rises. A rise happens almost twice as fast as a fall.
I always take the basic 10-year fixed rate for a 100% mortgage as my benchmark. It is currently 3.88%. A few months ago, this rate was still 4.41%. So the interest rate has fallen quite considerably. But it is still around 2% higher than at this time last year. If you look at inflation, a rise in interest rates is logical. Normally, interest rates rise or fall along with inflation. A falling interest rate improves affordability. We can see this reflected in the number of viewings again. The number of viewings is rising once more.
What's funny to see is that there is a seasonal pattern in mortgage rates. Every year, the big banks in particular lower their rates slightly around April. This used to be the period around the Open Huizen Dag (the national open house day). In June, mortgage rates were always raised slightly. This was so that the applications could be processed calmly before the summer holidays began. In general, you see the biggest fall around August. Around November, rates are raised slightly again for the end of the year. That shows that, for both buying and selling, September and October are good months, and so are April and May.
We are ignoring demographics
In the Netherlands, we long counted on population decline. In the past, plenty of homes were built to keep up with population growth. But we seem to have forgotten how. As a result, the housing shortage keeps growing. On top of that, we are living in ever bigger homes.
Regional diversity has a big influence on what we need to build, where we need to build and for whom we need to build. The fact that many families are leaving the Randstad (the urban conurbation of western Netherlands) doesn't automatically mean that young families no longer want to live in the Randstad.
And of course, there is no such thing as a single housing market. There are huge local and regional differences. Differences in types of homes, family composition and culture. We sometimes forget that we have an enormous influx of migrants, refugees, expats, seasonal workers and students. All these people need to be housed. We also have a rapidly ageing population. And we see that we have relatively many single-person households. Supply will have to be adapted to the demographics to keep our housing stock up to standard. Because of the huge rise in single-person households and the ageing population, we have relatively more square metres per person. But the share of broken families, where one family suddenly needs two homes, also means we need more and more homes.
As a result, demand is rising faster than supply.
Inflation
The world economy is caught in a price spiral. Nobody knows how long this will last. This is causing great concern among consumers. They fear that their income and assets are shrinking. Nobody wants to see their wealth evaporate. My acupuncturist complains every week. Her family lives in China. She always transfers money to them. The same amount in yen every month. But every month she has to transfer more in euros. Our currency is losing value. We also see that our euro is now often equal to the dollar. At the moment, the euro is sometimes even worth less than the dollar. The value of Dutch people's savings fell by more than 11.6% in 2022. At most banks, Dutch people are still paying to park their money. The stock and bond markets also took real hits. So the wealth of us Dutch people is being eroded rapidly.
The general conclusion is that a house doesn't offer perfect protection against inflation, but more than shares and much more than bonds. And over a longer period, property always increases in value. That makes it always sensible to invest in property if you have a long-term vision.
In the podcast with Christie Albai, she talked about making an exit. Selling all your property right now. Just like with crypto. But precisely as with crypto, it is smart to buy when not everyone is buying. You should buy in precisely when there is doubt. That is exactly when you make money. Especially if you have your own capital now. House prices have fallen slightly in recent months. This means that right now you can buy property on favourable terms and make your move.
Changing regulations
Until the end of the year, you can make use of the gift tax exemption, the jubelton (the tax-free gift towards buying a home). From January, the threshold for the transfer tax exemption on a first home goes up to €440,000. What we saw recently was that people couldn't or wouldn't bid above €400,000. Many homes had a transaction price just below that. Bidding €1,000 more meant paying €9,000 more. A very hefty difference. With the higher threshold, we expect some of these homes to rise considerably in price again, but with a ceiling of €440,000.
We expect another final sprint before the end of the year. Rising house prices are not strange in this market. On the one hand, there are people who still want to use the jubelton and want the handover to take place before 1 January 2022, and on the other hand, people who want to use the transfer tax exemption and want the handover to take place after 1 January 2022.
This puts extra pressure on the lower end of the market.
Conclusion
Interest rates are falling, so affordability is improving slightly again. The shortage is growing slightly again. Supply and demand are drifting further and further apart. High inflation and changing regulations. We expect the housing market to get very busy over the next three months. We think house prices will rise slightly again. Want to know more? You're always welcome to drop by for a drink or a cup of coffee, or just give us a call.
