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Saturday, 4 January 2014

Have we really reached the bottom of the Dutch residential real estate market? Sales went dramatically up in 2013Q4, but the housing prices went yet further down.

Today, there was really good news about the Dutch residential real estate market. So good, that indeed one could argue that the bottom of the Dutch housing market is in sight. Or is there a snag?!

The news site of RTL Television Netherlands published an article with respect to the sales of owner-occupied dwellings in 2013. 

Although 2013 as a whole has been the worst year for owner-occupied housing sales in years, the second half year of 2013 has been above expectance. Actually, the last quarter of 2013 was the best quarter in five years, according to this article.

Here are the pertinent snips:

2013 started extremely bad for the owner-occupied housing market, but a final sprint in Q4 established confidence for 2014. The last quarter was the best quarter in five years.

2011 had been poor and 2012 was really dramatic for the realtors in The Netherlands, but things could still be worse: in 2013, only 121,577 houses have been sold. 

Especially the extremely poor Q1, which only counted 18,441 sold houses, caused 2013 to be a historically bad year.

Houses sold in The Netherlands 2011-2013
Data courtesy of Makelaarsland
Click to enlarge
However, in Q4 no less than 43,277 houses were sold: 11% more year-on-year. This was something that we didn’t see in years.

Houses sold in The Netherlands during 2013
Data courtesy of Makelaarsland
Click to enlarge
The enormous growth of the housing sales, in comparison with previous quarters, is in line with recent statements about the growing consumer confidence and the positive economic development. The last months have been busy for realtors, notaries and mortgage advisers, especially in the capital Amsterdam.

“Further, we noticed indeed real demand for houses all over the country. Selling or not selling one’s house is first and foremost decided by the competitiveness of one’s sales price. This is why we see more results in the rural areas of The Netherlands”, according to Jeroen Stoop of Makelaarsland, a realtors organization.

“Currently, there is clarity about the regulations for new mortgages and the deductability of the mortgage interest. That is an undeniable fact. In combination with the growing number of housing sales in the second half year of 2013, every signal seems to be turned to green for 2014, when it comes to the Residential Real Estate market”, Jeroen Stoop continues. “The low interest rate and the lower housing prices are also very attractive”.

“The only limitation with respect to the purchase of a house, is that the benchmarks for mortgages will be invigorated and a little more money of the future owner himself is needed. During Q4, many people could still take advantage of the higher boundary value for the National Mortgage Guarantee (i.e. NHG) and the possibility to finance 105% of the housing value. From 1 July 2014 on, this NHG boundary will be reduced to €265,000 [this is currently €290,000 – EL]. Besides that, on January 1, the limit for the maximum loan on a house has already been lowered to 104%.

Although the results for Q4 have been very good indeed, there seems to be a snag in this news:

The reduction of the limit for housing loans to 104% now from 105% in 2013, could have been a reason for people to speed up their purchase decision and finish it before the end of 2013. I'll explain this.

When people buy a house in The Netherlands, they have to pay:
  • A capital transfer tax of 2% of the net sales price;
  • Notary fees of rougly 1% – 2%;
  • A capital transfer fee of 1% of the mortgage loan;
  • A flat fee of €1500 - €2000 for the mortgage broker;
  • The realtor’s fee of €1500, when they hired a realtor as purchase advisor;
  • A mover’s fee of roughly €2000, when they hire a professional mover. 

These costs amount to roughly 7% of the purchase price of their new house.

With a house of €250,000, a one percent higher mortgage loan amount means €2500 less to finance with one’s own money or through private loans from other credit suppliers or family. This could have been an extra motivation for people to speed up their decision to purchase a certain house.

A second reason to buy a house before 1 July 2014, could be the brisk reduction of the NHG limit to €265,000. In these uncertain times, the difference between having or not having a NHG on your mortgage is approximately 0.5% in extra interest; that is €1400 per year on a €290,000 house.

And one more thing: when the bottom of the housing market was really in sight, one would expect that the prices of owner-occupied dwellings would not drop anymore, right?! Well, they did drop, albeit by a whisker! The following data comes from the wonderful Statline database of the Dutch Central Bureau of Statistics.

Price index and average sales price of dwellings in The Netherlands
Data courtesy of: CBS
Click to enlarge

Number of sold dwellings in The Netherlands
Data courtesy of: CBS
Click to enlarge
What also worries me about the data from Makelaarsland is that the number of sold houses in Q3 is more than 2000 higher than in the corresponding CBS data for the same period: 31,008 vs 28,925. This is a difference of about 7% in numbers! 

Of course, the used calculation methods in both investigations could be different – for instance the moment that the buyers sign a preliminary sales contract with the seller's realtor vs the actual transfer of the house at the notary. Nevertheless, 2000 houses difference in one quarter is a significant number.

Therefore and for other reasons, I urge you to be still careful with your forecasts on the health of the Dutch housing market. 

In the second half of 2014, after the NHG limit has been adjusted downwards, I expect a slump in housing sales. 

And I don’t put my money on it yet that the housing prices won’t drop further in 2014; especially as the economy will remain difficult and unemployment is still expected to rise during this year.

As the proverb goes: one swallow does not make a summer in the Dutch housing market.

1 comment:

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