House prices expected to fall by 2.5 percent in 2023

• Housing market cooling off due to fall in consumer spending power, rise in mortgage interest rates and economic downturn

• ABN AMRO revises its housing market forecast for 2023, from a 2.5% increase to a 2.5% decline

• Number of transactions to fall less quickly than expected in 2022 (-15%) and 2023 (-1%)

Reversal on the housing market with a drop in prices expected in 2023

A reversal can be seen in the housing market. The number of house purchases is falling, there are more houses for sale and, after years of unprecedented price increases, everything points to house prices falling next year. High energy rates, declining consumer spending power and rising mortgage interest rates are negatively impacting home buyer sentiment and making sales more difficult. These factors have led ABN AMRO to adjust its forecasts. For example, the bank no longer expects prices to increase in 2023 and instead expects prices to decrease by 2.5%. In the four major cities in the Netherlands, where the housing market reacts relatively strongly to economic fluctuations, house prices are falling even faster than elsewhere in the country. Unlike in previous periods of economic downturn, the price correction is occurring relatively quickly. The advantage in this situation is that the number of transactions can more easily stabilise, which is why ABN AMRO is now forecasting that these numbers will drop by 15% in 2022, down from its previous estimate of 17.5% made in the last quarter. Furthermore, rather than the number of transactions falling by 2.5% in 2023, we now expect this figure to be 1%. This is evident from the ABN AMRO Housing Market Monitor (Dutch only) set to be published today.

Impact of housing market price correction on the economy limited for the time being

According to ABN AMRO, compared to the previous crisis period (2008 to 2013) the home price correction and its impact on the economy will remain limited for the time being. For example, the bank does not expect mortgage interest rates to rise much further. The increased requirements placed on homes due to home working, the persistent housing shortage and a tight labour market also provide a counterbalance to falling house prices. On balance, homeowners are not much affected by the interest rate hike, given that most have fixed mortgage interest rates over a longer term. Furthermore, thanks to the sharp rise in house prices, most homeowners have also built up a lot of equity in recent years. This, in combination with government support to keep energy costs manageable, has ensured that many families are more resilient than during the credit crisis.

Number of housing transactions remains stable thanks to rapid price correction

In ABN AMRO’s view, this, and the realisation that the economic outlook is worsening rather than improving, explains why sellers are now more accommodating when it comes to considering bids lower than they had envisioned. “Unlike during the credit crisis, homeowners have the necessary equity and will not be left with mortgage debt after selling their home. During the credit crisis, this caused an impasse in the housing market since many homeowners were only prepared to compromise on price after their home had been on the market for a longer period of time. This time, prices are being adjusted much faster after a drop in the number of transactions, ensuring that transactions remain reasonably stable and keeping the housing market from coming to a standstill,” says Philip Bokeloh, housing market economist at ABN AMRO. “In terms of transactions, there is the risk that if the number of new-build homes drops and again falls short of the targets it will become more difficult for homeowners to move up in the housing market.”

The full report can be downloaded here. (Dutch only)