Interest rates stay lower longer: house prices rising more than assumed

Press release -

House prices look set to surpass earlier projections by climbing even higher, on the back of interest rates probably staying at lower levels. In its latest report on the Dutch residential property market, the Housing Market Monitor (in Dutch only), ABN AMRO’s Group Economics predicts an average 2018 increase in house prices of 8.5% relative to 2017. Until quite recently, ABN AMRO’s economists had forecast an 8% advance, and they have now also sharply bumped up their projections for 2019: a 7% uptick in house prices, significantly higher than the 5% it predicted previously.

ABN AMRO ups its house price projections for 2018 and 2019

ABN AMRO economist Philip Bokeloh comments: "Interest rates are generally expected to start rising going forward, as the European Central Bank (ECB) is looking to ‘normalise’ monetary policy. But we suspect the ECB will take its sweet time to do so in view of low inflation. What’s more, we’ve been seeing a raft of disappointing global economic figures, renewed concerns over Italy and the growing threat of a global trade war. All of this has prompted us to cut our interest rate projections and low rates are likely to continue to support price trends, at least for the time being. In fact, real disposable incomes are rising, even if wage trends are still lagging. Meanwhile, the dearth of available homes continues to make it hard for potential buyers to find what they’re looking for, and together these factors have induced us to raise our house price forecasts."

Negative influence

If international threats – such as a trade war – actually materialise, they may yet be a negative influence on the Dutch residential property market, Group Economics reckons. There’s a danger that consumer confidence in the economy will dip and that consumers will become more reluctant to make big-ticket purchases, including homes. Initially, any deterioration in sentiment will adversely affect residential property sales, but over time house prices will also start to reflect such a scenario.

Effect on fixed interest terms

ABN AMRO’s economists are keeping a keen eye on the impact that interest rate changes will have on mortgage loans’ fixed interest terms in the Netherlands. Over the past few years, consumers have shown a strong preference for long-running fixed-rate mortgages, with a 20-year term often being the rule. Group Economics suspects this might change if long rates start to rise but short rates stay low.

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