End of falling mortgage rates may cool overheated housing market

The higher estimate also affects the forecasts for prices in 2022, which have been adjusted from 5 to 10 percent. Although the number of transactions is falling, it is higher than expected and the estimates for home purchases have therefore also been adjusted. In 2021, transactions are set to fall by 5 percent and in 2022 by 10 percent, while last quarter's forecast was the opposite.

Philip Bokeloh, housing market economist at Group Economics: "We see that transactions are under great pressure, because there are very few residential properties for sale. As many as eight out of ten homebuyers are forced to bid considerably more than the asking price. The average purchase price is now more than four hundred thousand – that’s a hundred and fifty thousand higher than five years ago.”

Housing shortage not the only factor

The astronomical rise in house prices is driven by scarcity in the housing market combined with historically low mortgage rates. This allows homebuyers to borrow more. This extra borrowing power is causing house prices to go through the roof. However, according to Philip and his colleagues, the decline in interest rates is likely to come to an end. “Higher inflation has caused interest rates to rise in the financial markets and the costs for mortgage providers to increase. Due to fierce competition, this had not yet translated into higher rates, but that changed this week,” Philip continued.

Philip is therefore expecting a slight increase in mortgage rates. “This may eventually take some of the heat out of the market. The pressure on the next government to implement structural reforms, for example with regard to taxation, is growing. That means we can’t rule out more sacred cows being sacrificed.”

Price difference between Randstad and provinces still large

The price increase is more or less the same whatever the type of house, price category and year it was built. The differences are more pronounced between the various Dutch provinces. Prices are currently rising fastest in provinces with a lower average price level, such as Groningen. But at € 276,000, the average purchase price there is still € 183,000 lower than in North Holland and € 90,000 below the national average. There is still a big price difference between the densely populated Randstad area and the provinces outside it.

You can read the full Housing Market Monitor on the Group Economics website, (Dutch only).

For clients, there is also a separate page for the Housing Market Monitor on the ABN AMRO website under Mortgages, (Dutch only).