Cooling down and ailing

The housing market will cool down in the coming years: house prices will rise less rapidly and mortgage interest rates will rise further, towards 4% in 2024. This is predicted by De Nederlandsche Bank (DNB) in its latest economic report. The forecasters of the central bank still see a price increase of about 14% this year and that is already a small flattening. But in the coming years the leveling off will be a bit faster: in 2023 DNB foresees a price increase of 3.7% and in 2024 about 2.5%.

Now we all know that predicting is a difficult profession, because the future is very uncertain, but let’s assume for the sake of convenience that the coffee-drinkers are right. That will bring an end to the craziness that has reigned in the housing market for some years now. For prospective buyers, that’s good news. However, the effects will be tempered somewhat by the further rise in mortgage interest rates. DNB sees it rising to 3.8% in 2024 as a result of economic uncertainty and rising inflation, among other things. This will lead to a reduction in the borrowing capacity and will therefore have a moderating effect on house prices.

By the way, DNB director Olaf Sleijpen does not expect a real crisis in the housing market, he says in De Telegraaf, not even as a result of the ongoing war in Ukraine. “The housing market is and will remain tight, that is an underlying force that is propping up house prices.” Only a severe recession or a financial crisis could cause a housing market crisis. And he doesn’t see one looming. Growth may be off for a while and the economy will be ‘ailing’, but according to DNB there will still be slight growth over the year as a whole. Rabobank and ABN Amro are slightly more pessimistic and estimate the likelihood of a recession to be somewhat greater. What is clear is that the duration of the war in Ukraine – which nobody can predict – will be a decisive factor. For the rest, I see DNB’s position primarily as confirmation of the view that price formation in the housing market is largely determined by the tight supply. And that it therefore remains important to expand that supply substantially and quickly, with as few cost-increasing requirements and conditions as possible.