ABN AMRO: ‘Housing market to continue to benefit from low interest’

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Home buyers will continue to benefit from low mortgage rates for longer than was recently thought. ABN AMRO’s Group Economics unit predicts that a 10-year yield of 1.0% at year-end 2018, as opposed to 1.5% as expected previously. This means that long-term mortgage rates, which follow the 10-year yield, will also start increasing later than the economists expected at the start of this year.

At the start of the financial crisis, when it needed to boost inflation the European Central Bank (ECB) took a series of measures: it lowered official interest rates, for example, and started buying back large volumes of bonds (specifically government bonds) to keep long-term interest rates artificially low. With inflation failing to meet targets, the ECB has continued this policy. ‘However, we expect the ECB to announce shortly that it will start lowering the monthly volume of the buyback programme from the beginning of 2018,’ comments ABN AMRO economist Philip Bokeloh. ‘In anticipation of this less active buyback policy, long-term interest rates will probably climb marginally. We expect the 10-year yield on Dutch government bonds to go up 0.2 percentage points to 0.8% by the end of the year, and climb to 1.0% by year-end 2018. This increase is less than we had expected, and it also means a smaller rise in long-term mortgage rates.’ 

Continuing trend

The Housing Market Monitor published by Group Economics shows that confidence in the housing market remains high, although the public are not quite as optimistic as they were. Their enthusiasm has been dampened by the prediction that interest rates have passed a nadir and are set for an upswing. Contributing most to the diminishing optimism, though, is the growing scarcity of available homes. ‘The shortage on the housing market is evident from the volume of sales,’ Bokeloh explains. ‘Although volumes are increasing strongly in regions that previously were lagging, sales are under pressure in regions where availability is limited. We believe that this trend will continue, and that after four years of steady growth sales volumes will drop in 2018.’

House prices to rise faster in 2017

Group Economics expects house prices to rise faster than initially thought this year, and has adjusted the projected increase from 7% to 7.5%. One reason for the rising house prices is the shortage on the housing market. More and more potential buyers are having trouble finding affordable homes. This is a problem in particular for first-time buyers, who have more difficulty putting up the required capital. Besides its prediction for this year’s price movements, Group Economics has not adjusted any of its forecasts (see Table 1). ‘We prefer to wait until the new government has been installed and has explained what it intends to do about the housing market. In particular, we want to know what plans will be made for making more homes available,’ Bokeloh explains.

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