Are house prices finally dropping?
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The average house price in Amsterdam has dropped. And not in a minor way, it went down 3,8%. Also, significantly more homes were sold compared to 2018’s second quarter, according to figures from the Dutch Real Estate Association (NVM). Is this a sign that the housing market is cooling down or that house prices are perhaps even falling? Amsterdam is often a forerunner in the housing market and therefore a predictive indicator.
Amsterdam house prices
However, the explanation for this fall in the average house price is simple: there are simply more houses being sold outside the (expensive) centre ring. On average, these homes are a lot cheaper, say between 250.000 and 400.000 euros. This is why the average house price in Amsterdam has gone down. What’s also remarkable is that the number of homes for sale in Amsterdam has risen sharply, by almost 50%. In total, around 4.000 homes are now for sale.
The broadening of the supply means that the housing market in Amsterdam is not as tight as it was a year ago. Potential buyers have noticed that there is a little bit more room in the market. The local NVM brokers indicate that there are fewer viewers (on average 10) and bidders (on average 3-4). These are still numbers many house sellers in the Netherlands would be happy with.
In contrast to homes outside of the ring, prices of homes inside the ring are no longer rising that fast. The prices in the top segment of Amsterdam’s housing market appear to have reached a ceiling.
The situation in Amsterdam traditionally predicts what will become the national trend in the housing market for the coming years. The upward pressure on prices after the crisis spread like wildfire; first in the Randstad and then the rest of the country followed. It’s therefore hard to say whether this is a standalone incident or a sign of something bigger.
Other major cities and nationwide
The prices in other large cities have also risen, but not as fast as in previous times. Figures from Statistics Netherlands (CBS) and the Land Registry Office confirm this. These figures are based on property transfer at the notary (the NVM bases their figures on the time of sale, which is earlier and can differ by weeks or even months), but even here levelling off is visible.
Although the increase in house prices has been higher in recent years, a home in the second quarter of 2019 still costs considerably more now than it did in the previous year. In the big cities, prices in Utrecht rose by 9,7%. Homes in Rotterdam and The Hague were also more than 9% more expensive. The national average is 7,2%.
The Netherlands is cooling down
House prices continue to rise in the rest of the Netherlands, but at a slower pace than before. Peter Boelhouwer, professor of housing systems at TU Delft, expects house prices to stabilise throughout the Netherlands in one-and-a-half to two years. "Amsterdam and the other major cities are always slightly ahead of the rest of the Netherlands. Prices are going up sooner, and down again sooner."
According to NVM chairman Ger Jaarsma, it is all in all “a good time to sell”. He is not the only one who thinks so, according to the sales figures. Last quarter, almost 39.200 homes changed hands throughout the Netherlands, 2% more than in the previous year. Many investors think it is a good time to sell now. This gives the potential buyer more choice, more time and perhaps more room to negotiate.
Less new build houses sold
In contrast to the number of existing homes sold, the number of new build homes that have been sold has fallen by 13%.
NVM chairman Ger Jaarsma blames the fall on high prices. The price for an average new build home rose to 387.000 euros; an increase of 17%: "The average new build home has been 80.000 euros more expensive than an average existing home for two quarters in a row. Normally, the price difference between these two types of houses lies around 20.000 euros."
These high(er) prices are the result of high personnel, construction and land costs. Government measures, such as gas-free construction and sustainability, are also influential. "Stacking government measures are driving up prices and are counterproductive for the housing market. Buyers of new homes are dropping out."
Mortgage interest rates still dropping
What certainly is dropping are the mortgage interest rates. The past month, the percentages went down again slightly. No less than 26 providers on the Dutch mortgage market lowered the mortgage interest rate one or more times in July. In particular, interest rates with longer maturities fell.
The average interest rate for a 10-year fixed mortgage with NHG is now 1,5%. For 20 years, the rate is around 2,1% and for 30 years it is only slightly higher, with an average of 2,4%. Without NHG (National Mortgage Guarantee), the rates are higher.
Starters on the market
Starters benefit from a low-interest rate, but due to the limited supply (which is now relaxing) and the high prices, it’s still hard for them to find a suitable home. The best option for them is to settle for a smaller home or to move to a cheaper region.
Those who already have a house with a mortgage can potentially benefit from the low mortgage interest rate. Because house prices have risen so rapidly, a risk premium on the mortgage is no longer necessary. Therefore, many homeowners are eligible for lower interest rates on their existing mortgages.
The end of interest rate cuts is not yet in sight. The President of the European Central Bank (ECB) is concerned about the future of the economy and wants to come up with new stimulus measures. One of these is to adjust the interest rate. The most important interest rate is already negative (- 0.4%) and is expected to fall even further. This is favourable for homebuyers, as mortgage interest rates generally follow this line.
However, this is bad news for savers as saving yields virtually nothing. The highest savings rate is now 0,27% (Bunq), the lowest 0% (Triodos). At the big banks, you still get 0,03%. It's only a matter of time before the first bank starts offering a negative interest rate.
This means that saving money costs money. As a matter of fact, it already costs you money nowadays. The inflation rate is about 2% and government tax on your capital (above 30k) is around 0,5-1% (depending on the amount of savings), which means you lose about 3% on your capital annually.