House prices expected to drop by 5 percent in 2023

These are the findings of the latest edition of ABN AMRO’s Housing Market Monitor. The bank assumes the end of the price correction is imminent, though, and so has revised its price forecast for 2023 upwards slightly from -6 percent to -5 percent. In 2024, it predicts prices will drop by 3 percent. However, the affordability of homes is still poor, and further correction will be required to change this. ABN AMRO expects affordability to improve little by little, and indirectly, as wages go up. This will take time, though, and the number of transactions will therefore likely remain low, dropping by 5 percent in 2023 and by 2.5 percent in 2024. Previously, ABN AMRO predicted the number to go up by 2.5 percent in 2024, but with few new homes being built, we have lowered our forecast.

Share of first-time buyers completing transactions is growing, but not without risks

House prices are under particular pressure in the country’s large cities, because in the past prices there rose faster, creating more scope for a price correction now. In addition, its ties to economies outside the Netherlands makes this market susceptible to international economic fluctuations. There are also more investors active in this market. Due to the higher property transfer taxes, buy-to-let restrictions and other factors, these investors are now selling more homes than they are buying – a reversal of the situation in the past. These changing circumstances mean more opportunities for first-time buyers, and this group is taking a greater share in transactions despite their disadvantages relative to other groups. ABN AMRO believes that this hints at an ongoing urgency among first-timers. The risk is that they will be more likely to opt for cheaper homes, with lower energy labels, and venture onto the property ladder at a bad time. As a result, they might need to wait longer before being able to move up the ladder.

Households in a relatively favourable financial position

ABN AMRO foresees a slight drop in mortgage rates, which will increase buyers’ borrowing capacity and so help buoy up sentiment in the housing market. With lower house prices and higher incomes, home finance will also become easier to obtain. “The financial position of incumbent owners offers some comfort,” explains Philip Bokeloh, Housing Market Economist at ABN AMRO. “Not only are their mortgage costs lower, relative to their income, but their relatively high savings also offer a buffer for financial setbacks. They are also less at risk of having a residual debt, now that their mortgages are more proportionate to the value of the collateral. However,” Philip stresses, “one group whose risks are higher are first timers who recently bought a home without contributing much of their own money. Nevertheless, first-time buyers have little choice, and are not in a position to wait for a better time to buy. Homes are in very short supply, and the problems in the construction industry will only make this worse. Unfortunately, now that the government has fallen, this issue is not likely to be resolved any time soon.”