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Monday, 23 June 2014

Dutch statistical bureau CBS shows clear signals of an improving Dutch housing market in May, 2014. This could be the beginning of the end for the Dutch housing crisis, which started so covertly in 2006. Nevertheless, don’t raise the flag yet!

During the last two years, I wrote few articles about the Dutch housing market.

The main reason was that there were many other interesting topics to write about, while the Dutch housing market itself showed little change and improvement during the last few years. Besides that, I felt that I had said almost everything that needed to be said about it and I did not want to repeat myself.

Still, last Friday the Dutch Central Bureau of Statistics ( came with the ‘good’ news (for sellers; not for buyers), that the Dutch housing market in May, 2014 had improved in comparison with last year: not only the sales had increased dramatically year-on-year, but even the housing prices were (slightly) up.

Here are the pertinent snips of the CBS press release:

Prices of owner-occupied houses, excluding new constructions were on average 1.4% higher in May 2014 than in May 2013. In April 2014, the first year-on-year price increase (0.1%) in 5 years was recorded.

Prices of owner-occupied houses have been stable for more than a year now and are at approximately the same level as in early 2003. They were 20% below the record level registered in August 2008. 

Sales of owner-occupied houses continue to rise. In the first five months of this year, 51,709 homes were sold, an increase by more than 36% relative to the same period last year.

For people, whose mortgage is under water (i.e. the remaining loan sum is higher than the market value of the collateral house), this is particularly good news.

Now these people have an outlook to earn back some of the (paper) losses on the value of their home. And on top of that, the improved sales numbers mean that it will be slightly easier to sell their house within a reasonable period of time.

Still, I advice you to not raise the flag yet!

On 1 July 2014, the ceiling amount for the Dutch ‘National Mortgage Guarantee’ or NHG – a guarantee from a semi-governmental organization, which protects houseowners against residual debt, in case of an involuntary housing sale – will be substantially reduced to €265,000 from the current €290,000:

As a consequence of this reduction [of the NHG guarantee ceiling amount], many future buyers could miss a discount on the interest rate to the tune of 0.7% for a mortgage loan with a ten year fixed interest rate. This will increase the monthly payments for a €250,000 dwelling with €100 to €150 per month.

In my humble opinion, the increased housing sales and slightly higher housing prices during the first five months of 2014, do not come as a surprise.

I think that many people grab the opportunity to make a ‘last minute’ buy of a house with an NHG guarantee at the current €290,000 ceiling amount: especially the people whose designated house lies within the price range of €265,000 -  €290,000. 

Consequently, the true benchmarks for 2014 will be the housing sales numbers and housing prices in July and the remainder of this year. Afterwards we will have a better overview, whether the Dutch housing market indeed improved in 2014, or that the improvements have been (again) the results of government intervention in the Dutch housing market.

Besides that, one should remember that the price level of Dutch dwellings has returned to 2003 levels (see the red and bold text), while the current average interest rate on mortgages is 1.3 % (!) lower than in 2003. This shows what an enormous beating the Dutch housing market bore during the last six years.

To spice up this article, I have created a few charts of the Dutch housing market, based on data from the Central Bureau of Statistics and Dutch national bank De Nederlandsche Bank (i.e. average mortgage interest rates).

These charts show the price index and sales numbers, during the last 20-odd years and also – on the following chart – the influence of the interest rate on the average housing price and sales numbers:

Number of sold houses (moving average) and the indexed
housing price vs the average mortgage interest rate
Chart by: Ernst's Economy for You
Data courtesy of: and
Click to enlarge
For me this particular chart is very interesting, as it shows a few clear correlations.

As I mentioned earlier at this site, the Dutch housing crisis strongly accelerated after the start of the credit crisis in 2008, but it is not caused by the credit crisis, even though this is a popular myth.

In January 2006, the average interest rate on mortgages started to rise strongly again, after being in a record-low trough for about a year. This had the following consequence: after hitting record sales in January 2006, the average housing sales number started a period of steady decline, which lasted until 2013: a mindboggling seven years.

On top of that, after the mortgage interest rate hit peak level in September 2008, the housing prices also started to decline. This price drop has lasted until April 2014, in spite of the record low interest levels since September 2013.

The indexed housing prices and quarterly
sales of Condominiums (1995 = 100)

Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge

This particular chart shows that the price of condominiums has risen sharply since 1995: with 194%. However, the decline of prices, since the highest price level was reached, has only been 22.6%. This brings the proportion between the pre-crisis price increase and the subsequent post-crisis price drop to a record 8.6.

The reason that the price decline for condominiums has remained fairly low is – in my humble opinion – that most condos are relatively cheap ‘social’ houses. 

Unsubsidized rental houses in the same category became much more expensive since 2008: see for instance the chart in this article, which shows housing rent raises versus the official inflation rate in The Netherlands since 1989. 

This means in reality that a cheap owner-occupied condo or house-in-a-row is often much less expensive than a rented house in the same category: even at the current, still high housing prices. This is the reason that you see a similar phenomena at the houses in a row:

The indexed housing prices and quarterly
sales of Houses-in-a-row (1995 = 100)

Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
Since 1995, the average price of a house-in-a-row has increased by 169%, which is less dramatic than the price increase of condos. 

Nevertheless, the price drop since the highest price level has only been 20.2%. This brings the proportion between pre-crisis price increase and post-crisis price decline to 8.4 for houses-in-a-row, which is also very high in comparison with more expensive types of dwellings.

The indexed housing prices and quarterly
sales of Residential Houses (1995 = 100)

Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
Residential houses went through the most dramatic changes since 1995. 

In the years before the crisis, the average price of residential houses increased by a staggering 239%, but after the crisis started, the average price plummeted by 32.1%. 

This brought the proportion between pre-crisis price increase and post-crisis price decrease to 7.5, which is quite low. 

This means that both the price increase and price decline have been particularly dramatic for residential houses.

The indexed housing prices and quarterly
sales of Semi-detached Houses (1995 = 100)

Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge

With 189%, the price increase of semi-detached houses was also quite high before the crisis, but so has the price decrease since the crisis started: 27.1%. 

The result of these changes is the lowest proportion between the pre-crisis price increase and the post-crisis decline: 7.0. 

Just like with residential houses, the price of semi-detached dwellings has suffered dearly from the crisis.

The indexed housing prices and quarterly
sales of Corner Houses (1995 = 100)

Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
As corner houses are also a relatively inexpensive kind of dwelling, the proportion between the pre-crisis price increase (178%) and the post-crisis price decline (22.9%) is also quite high: 7.8. This means that the price of corner houses has remained fairly stable after the crisis started, in comparison with the quite dramatic price increases since 1995. 

This makes sense, when you compare the fixed expenses per month of such a house with the price of a comparable house on the free (as in ‘unsubsidized’) rental market.

Summarizing, one can state that the Dutch housing market is indeed improving, with increasing housing sales numbers for all kinds of dwellings and even average sales prices, which are cautiously rising.

However, it is much too early to call it a day for the crisis on the Dutch housing market. 

Only after the NHG ceiling amount has been lowered on July 1st and the sales numbers and housing prices remain rising in the following months, we ‘might hear the fat lady sing’. Besides that, even then it might take years and years before the consequences of this ferocious Dutch housing crisis have been polished away.

The worst consequence for me of this improving Dutch housing market is, however, that the Dutch government might see the aforementioned positive developments as an encouragement to postpone further attempts:

  • to abolish the Mortgage Interest Deductability (MID) policy, which keeps housing prices at an artificially high level, due to the strong reduction of the net interest rate, which homeowners have to pay;
  • to make it slightly easier for Dutch citizens to get rid of their excess mortgage debt. Nowadays, it is almost impossible to get rid of excess mortgage debt or residual debt after an involuntary housing sale;
    • Even banks that blatantly overcredited people in the years before the crisis, hardly suffer from the consequences of their reckless actions.
This would mean that the utterly disturbing MID policy (for the Dutch housing prices) remains in place and that many Dutch citizens will remain slaves of their excess mortgage debt in years and years to come. 

What a shame!  

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