House prices drop less strongly than expected, increase predicted for next year

• Prices fall by 3 percent in 2023 and rise in 2024 by 2.5 percent

• Number of home transactions falls by 5 percent in 2023 and by 2.5 percent in 2024

• End of price correction due to stabilising sentiment and more positive outlook

Despite the rather subdued sentiment in the housing market, prices appear to be stabilising at a higher level than expected, having risen slightly in the third quarter to 4.3%percent below the peak in July 2023 Prices have dropped predominantly in big cities. Furthermore, older homes with a low energy label have experienced a greater price drop. Taking the current rebound into account, the houses with low energy labels are lagging behind those with better energy labels. This effect is expected to become more apparent from 2024 when the energy efficiency of houses is included in mortgage lending standards. Partly in light of this, ABN AMRO has revised its price estimate upwards in the latest edition of the Housing Market Monitor (in Dutch only): from -5 to -3 percent in 2023 and from -3 to +2.5 percent in 2024.

Transaction volume remains low due to few completions and limited sales of new-builds

While demand for homes is heading for a record high, the development of new housing cannot keep pace. Construction of new homes is threatening to lag due to higher interest rates, the high price of building land, and increased construction and labour costs. Also, fewer permits are being issued and the high interest rate is making it hard to buy relatively expensive new homes. The lack of suitable new-builds is hampering home movers, which is keeping the number of transactions low. Against this background, ABN AMRO’s transaction estimates remain unchanged at -5 percent in 2023 and -2.5 percent in 2024.

Change in mortgage lending standards could help boost sustainability

According to ABN AMRO, the change in lending standards could make new-build homes more accessible.

Under the change, financing cost calculations will take into account a home’s energy use from 2024. Buyers with the same income will be able to borrow as much as 50,000 euros more for more sustainable houses. The idea behind this is that the money households save on energy can be spent on housing costs. “This additional borrowing capacity could make sustainable new housing available to a larger group, which will benefit homeowner movement. In addition, when calculating the mortgage loan for an existing, poorly insulated house, 20,000 euros can be disregarded as long as this amount is invested in sustainability improvements to the house,” explains Bart Vendel, Housing Market Economist at ABN AMRO. “There is a downside to this new rule, though. As sellers, home movers – who often already live in energy-efficient homes – can benefit from the greater borrowing capacity of buyers. But first-time buyers will be forced more often to opt for cheaper houses with a lower energy label, which means having to take more sustainability measures. They generally have less equity to put in and often have a lower income, so they could end up facing higher costs. As a result, they may have to wait longer for a suitable house and the next step in their housing career.”