The Rabobank presented today its quarterly review on the Dutch housing market. As the regular readers of this blog would expect: the news was bad.
Here are the pertinent snips of the summary of Rabobank’s quarterly review.
People that understand Dutch can find the whole review behind the link, as it is a informative read.
The market for existing private housing in The Netherlands suffered from a bad second Quarter. Both the price level and the transaction numbers reached a new low.
The decreasing transaction numbers and the further increase in the number of houses for sale show that sellers and buyers cannot reach an agreement currently. From a buyer´s point-of-view, this is caused by a lower borrowing capacity, general government cutbacks and the increased mortgage interest. The lower borrowing capacity is a consequence of an advise by the Nibud (Netherlands´ Institute for Budget information), effectively limiting the maximum borrowing amount on mortgages.
Also the debt crisis in Europe is bad for confidence in the housing market, which leads to a diminished demand for private housing. Many sellers are not willing yet to adapt their sales prices to the current market circumstances. The sluggish housing market development was a reason for the Dutch government to reduce the conveyance duty. We expect that because of this measure, sellers and buyers will more often reach an agreement. We expect a total housing sales in 2011 of 125,000 and in 2012 133,000.
The increase in transaction numbers is good news for sellers as well as buyers, as both parties can move more quickly to a house that meets their housing desires. Also for real estate agents, notaries and removal firms this is positive news. However, the reduction in the conveyance duty will not cause a turnaround in price development.
As a consequence of this measure, the supply will increase more rapidly compared to demand, which fuels the competition between sellers. Also the borrowing capacity of buyers will remain under pressure, due to cutbacks and a new reduction of the allowed interest burden percentages. This is bad for the affordability of houses.
It can be expected that the housing prices on a national level will drop by 2% in 2011 and by another 2% in 2012.
The newly built housing sector will suffer from the lowered conveyance duty in the long run, as newly built houses will become relatively more expensive, compared to existing houses.
The good thing about this Quarterly review is that it monitors that the housing market is still locked up. The bad thing is that the Rabobank kicks the can further down the road as far as it concerns the excessive prices and mortgages of Dutch housing. Besides that, the bank is overly optimistic on the numbers of sold houses for 2011 and 2012, while there is no reason whatsoever to be that optimistic.
The main reason that sellers and buyers can’t meet each other at the right price, is:
- The sellers are forced to ask a price for their house that is too high, due to the enormous mortgage that needs to be paid back.
- The buyers can’t borrow the money to pay this price, as their bank won’t allow them.
To unlock the Dutch housing market, the housing prices need to be lowered. As this is not in the interest of the Dutch government and the Dutch banks, pension funds and insurance companies, this won’t happen very soon as far as they’re concerned.
The association of Real Estate agents NVM and the homeowner association ‘Vereniging Eigen Huis’ THINK it is not in their interest to lobby at the government and the banks for lower housing prices. And the homeowners wanting to move: they wait and wait and wait, but the perfect buyer, paying their desired price doesn’t show up.
The government could change this stalemate by abolishing the Mortgage Interest Deduction as an utter market disturbing measure and by making transitional arrangements in order to help homeowners to lower their mortgages. But the government won’t do this.
But even if this doesn’t happen: there comes a time when the Dutch house owners that live in a too expensive house can’t pay their mortgages anymore: when their labor situation changes for the worse or when the interest rates on mortgages go up. In the end, something has got to give and that something are the housing prices.
The Dutch housing market is definitely a bubble in my opinion, but it is the kind of bubble that everybody is struggling for to keep inflated.