Gradually the housing market is picking up, but the newsflow is still anything but consistent. On 10 April at 10 a.m., for instance, Dutch news website Nu.nl posted the headline ‘Dutch housing market at post-crisis high’. Yet at 2 p.m. that same day, they followed up with ‘Housing market still far from healthy’.
What is driving the housing market recovery?
Interest rates are low and house prices have dropped by 20% since their 2008 peak. For many, that makes this a favourable time to buy.
The construction of new houses is at a low ebb, while the number of households is continuing to grow, and this is boosting demand for existing homes.
This year, social housing and market rents have been rising steeply, with rent increases of up to 6.5%; buying a home often provides more financial security.
Property transfer tax has been reduced from 6% to 2%.
All in all, demand for houses is on the rise. The number of homes sold has surged over the past six months. In February 2014, this figure was a whopping 42% higher than in 2013. House prices are also picking up slightly, although the trend varies considerably per region. However:
The NVM (association of Dutch real estate brokers) thinks it will probably take a while before house prices are back to the old levels.
The Dutch Central Bank even expects that two thirds of mortgages that have been ‘underwater’ since 2012 - that is, higher than the current market value of the home - will still be underwater ten years from now.
For many, that means choosing either to resign themselves to staying in their current home for many years to come, or to sell their current home at a loss and buy a new one cheap as the market starts to bottom out. ‘In the past few years a reservoir of potential buyers has formed. That group has been waiting for a long time, but at a certain moment there will be a turning point and they will make their move,’ says Johan Conijn, Housing Market professor at the University of Amsterdam.
What makes it a good idea to take the plunge?
Trading up to a bigger home
In the past five years, houses across all categories have dropped in price by about the same percentage, which means that in euro terms the slump is affecting bigger houses most. This can be a good reason for buyers to take a loss on their current house, as they will net more ‘profit’ on the new one.
If a starter expects to stay at the same address for at least five years, buying a home is an attractive option right now. Renting a home is becoming increasingly expensive, but mortgage interest rates are low and so are house prices.
Buyers today no longer have the option of taking out an interest-only mortgage. From day one, they are now obliged to start paying back at least part of the mortgage, and at least on an annuity basis. At current low interest rates, that means that under the old and the new rules, home owners pay about the same amount each month for an equally expensive house – but under the new rules they are already repaying the mortgage. Still, some home owners who already have a mortgage under the old rules may prefer to continue taking full advantage of the tax rebate for mortgage interest. If so, their old mortgage can be transferred to their new home.