Owner-occupied homes are becoming more affordable again despite rising mortgage interest rates and high inflation. This is due to falling house prices and wage increases that many people are getting, Rabobank economists write in a new analysis. According to the bank, house prices are falling faster this year than previously thought, and that would not be bad news for home seekers.
‘The affordability of housing is improving. That may sound strange in light of previous reports about rising mortgage interest rates and inflation, but houses are getting cheaper’, says housing market economist Stefan Groot of RaboResearch. ‘Add to that the fact that wages are now rising fast and that people are also working more. This leaves more to spend on monthly payments.’
Groot also thinks that the capital market interest rates, on which mortgage lenders base their interest rates, will fall again in the course of the year. This should lead to a slightly more favorable mortgage interest rate in the long term.
A year ago, the housing market was still overheated and house prices rose sharply. But a fall in prices set in in the summer when mortgage rates started to rise rapidly. In addition, house seekers became more cautious because of the sharply increased energy costs resulting from the war in Ukraine. As a result, an owner-occupied house became out of reach for more and more people last year.
The Rabobank economists believe that house prices will fall faster this year than they previously thought possible. ‘We expect an owner-occupied house to be 7.6 percent cheaper at the end of this year than during the peak in July 2022. We previously expected house prices to fall by 3 percent in 2023. We have adjusted that to 4.2 percent.’
According to Groot, it seems that the ‘bottom’ will be reached at a certain point. “For 2024, we assume an annual price decrease of 1.5 percent. This decrease is the result of the price development in 2023. We expect house prices to remain more or less stable during that year.’
More fat on the bones
That is not to say that the problems in the housing market have all been resolved. There have recently been some more houses for sale, but the housing supply is still lagging behind the demand. According to Groot, this is mainly because new construction is not really getting started.
The economist does not expect a housing market crisis such as the Netherlands had about ten years ago. This year, the number of relocations in the Netherlands should pick up again. ‘Sellers have more fat on their bones due to the large price increases in recent years, the stricter lending standards and the repayment obligation. We think that this will keep the market moving more.’