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Friday, 8 April 2011

Dutch Realtors Association NVM: ”Dutch Residential Real Estate (RRE) market remains locked up badly”. This won’t change as long as everybody passes the buck.

Yesterday, the Q1 results on Residential Real Estate (RRE) were presented by the Dutch Realtors Association NVM.

For the regular readers of my blog, the results didn't come as a surprise:

  • the average houseprices dropped by a few percent
  • the sold number of houses dropped by 14.3%, compared to the last quarter and by 5.7% compared by Q1, 2010. 
This is the result that you get when the government, houseowner association and the Dutch realtor association NVM all “try'n keep the hole(s) plugged”.

In its quarterly press release, the NVM was – as usual – looking for all the wrong reasons in explaining the dissappointing results for Q1, 2011.

I show here the pertinent snips of this press release (in Dutch), combined with the latest figures of the housing market. All graphics are put together by me, based on the figures of the NVM.

Housing market in Q1 further under pressure by strict demands of financing.
Lowest sales numbers since credit crisis bottomed out.
The average price of a house sold  in The Netherlands was 1% lower than the previous quarter: 227,000 (± $313,000) vs  €229,300 (± $316,500). This states the NVM in its analysis of the Dutch housing market over Q1, 2011 that has been presented today.
Normally he first quarter scores about 7.7% lower than Q4 the year before, but last Q1 is well below this figure with 14.3% less transactions than the previous quarter. This is also caused by the relatively good Q4, 2010, but nevertheless worrisome. NVM Chairman Ger Hukker: Whereas the economy in The Netherlands is soaring again, consumers on the housing market remain awaiting.
The number of transactions of 21,536 in Q1, 2011 can be compared with Q3, 2010, which was a very bad quarter, and is among the lowest quarters since the bottom of the credit crisis (Q1, 2009: 19,457 transactions)
Also in comparison with Q1, 2010 the number of transactions declined, with 5.7% in total. The total number of sales, including sales by non-NVM realtors, was 29,000 in Q1.
NVM chairman Ger Hukker is worried about the persistent slump on the housing market. “We did predict that the small end-of-year rally of 2010 would not be lasting. Buyers remain awaiting and are discouraged by the choosy behavior of banks, the financing problems at private ground rent and the lack of tailormade mortgages for the consumer. A lot of potential buyers can’t arrange their mortgage. Besides that, the interest for the most popular mortgage type, the 30Y fixed, is soaring.

The housing prices in Q1 were further under pressure. The average house sold yielded €227,000. That was 1% lower than Q4, 2010 and 1.6% lower than Q1, 2010. It is still higher than the bottom of the housing market (Q1, 2009), when the average house sold didn’t yield more than €219,000. Cheap houses suffer most from falling prices. This, however, is an advantage for the starters on the housing market.

I,ve put the main data of this press release in some graphics I present below:
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For me it is a miracle how all parties involved in the Dutch Housing market keep missing the point:the Dutch housing market is locked because the HOUSING PRICES ARE TOO HIGH!! And as long as the prices are not lowered dramatically the housing market will be locked.

Don’t kid yourself by thinking that the housing prices increased since Q1, 2009 and therefore cannot be considered too high. There can always be an (immediate) need for some people to move to another house: children, a change of work location, a change in the marital situation or health issues. In these situations people can’t wait until the prices lower. But people that can wait are still waiting for the average housing prices to lower and that is the reason that the housing market remains locked-up.

In The housing market is not further locked-up… I explained why it is very hard for houseowners in The Netherlands to lower their prices dramatically.

Icing on the cake is the Mortgage Interest Deduction (or MID) that makes that housing prices in The Netherlands are much higher than in our surrounding countries, as people can borrow more money with the MID, without paying more interest
As a consequence house prices are kept artificially high, as people remain underwater (i.e. current sales value of the house is lower than the mortgage principal), but keep paying their interest on their (interest-only) mortgage.
This asks for an explanation: In contrary to the USA it is impossible in The Netherlands to leave your house key at the bank and wave your mortgage goodbye. The mortgage here is a personal loan and if you don’t pay it off:
·   Either it will be with you for the rest of your life as a residue debt.
·   Or you get declared bankrupt and then you have a cooldown period of at least 5 to 10 years in which you are obliged to repay your debts to a certain amount.

In both cases you get a negative registration at the Bureau of Credit Registration (BKR) also for at least 5 to 10 years, meaning:
  • ·You can’t get a new mortgage
  • ·You can’t get any loan whatsoever
  • ·You can’t get a creditcard
  • ·You can’t even get a customer card in any shop
  • ·You can’t buy a mobile phone with a subscription
  • ·Hence: You are virtually a renegade
    This makes that the paying ethics in The Netherlands are extremely high: people don’t want to turn into renegades and keep on paying their (way too high) mortgages, while it would be much better if they could sell their house and start to live cheaper.
    The large mortgage banks themselves are also slow with putting pressure on people in arrears. They know very well that currently the mortgages are often way higher than the execution value of the house. People defaulting on a large scale would mean that the banks would have to revaluate their asset portfolio, which would have substantial consequences for the bank’s core tier one capital.Therefore the banks “help” the people in arrears by temporarily accepting lower payments and not forcing them into a sale under distress.

    I published the preceding piece on March 2 and now my opinion is confirmed again by the latest figures of the NVM.

    The recipe for saving the Dutch housing prices is very plain and simple:
    ·     Get rid of the Mortgage Interest Deduction (MID)
    ·     Get rid of the redemption-free mortgages via a transitional arrangement.
    ·     Help people that are very much under water and want to sell their house, but can’t, by letting the banks share the burden of cutting down on their excess mortgage amount
    ·         The follwing parties should stop assuming the ostrich position:
    o        Politicians;
    o        Houseowner association;
    o        Dutch realtor association;
    o        The banks;
    o        Project developers;
    o        Houseowners themselves;

    The Dutch housing market was and is a bubble, but in contrary to the American housing market it is deflating very slowly, as people are tied up by hands and feet to their mortgage supplier.

    1 comment:

    1. I could not agree more, I been waiting for over 4 years to buy a house, but the prices are just way over priced.