House prices expected to rise by 7.5 percent in 2024 and by 5 percent in 2025

• Wage increases and gradual decline in mortgage interest rates are boosting sentiment

• House prices and transactions are rising faster than expected

• New coalition government follows course set by previous cabinet, but detailed plans are lacking

Sentiment in the housing market improves for third consecutive quarter

The sentiment in the housing market improved again in the second quarter of 2024 due to declining mortgage interest rates and rising wages, boosting confidence among homebuyers. With the outlook for the housing market improving for the third consecutive quarter, ABN AMRO has revised its price forecast upwards in the latest edition of the Housing Market Monitor: from +6 to +7.5 percent in 2024, while maintaining its forecast for 2025 (+5 percent). At the same time, the bank emphasises that although confidence has grown, housing affordability remains an issue. The declining mortgage interest rates are driving house prices up, reaching record highs in recent months and completely wiping out the price drop of 2023.

Unexpectedly high increase in the number of transactions (+10 percent)

As the housing market picks up, the number of transactions is also rising. In the first five months of 2024, nearly 78,000 existing homes were purchased, 9,000 more than in the same period last year. This strong increase has prompted ABN AMRO to raise its 2024 forecasts by 10 percent; for 2025, it expects a lower increase of 2.5 percent. The rise in the number of transactions is partly driven by the increase in the National Mortgage Guarantee (NHG) limit and the fact that private landlords are selling their properties. It is mainly first-time buyers who benefit from the higher NHG limit, as this increases their borrowing capacity. The declining mortgage interest rates and the recovery of house prices are also encouraging home owners to move to a next home. However, ABN AMRO notes that with new construction lagging behind, the growth in the number of transactions could slow down. High land prices and a lack of capacity to connect homes to the electricity grid are contributing factors. A positive note is that more construction permits have been issued; if this trend continues, the number of building permits this year could be a quarter higher than in 2023, according to ABN AMRO.

Government plans jeopardising housing sustainability

Although the new coalition government is following the policies initiated by former Housing Minister Hugo de Jonge and the goal of building 100,000 homes annually, it remains uncertain which measures they will implement to achieve this. It appears that rental rates for social housing will be linked to inflation from 2026, whereas they are currently linked to collective labour agreement wages. “If the expectation that inflation will eventually drop to 2 percent comes true, annual rent increases are likely to turn out lower as well. While this is a relief for current tenants, it puts pressure on the revenues of investors and housing corporations. If this results in less investment in new rental homes, it will be more challenging for future tenants to find a home,” says Philip Bokeloh, Housing Market Economist at ABN AMRO. “Additionally, the new coalition agreement does not include measures that will help achieve climate targets for the built environment nor will it help households to transition off gas. There are cuts to sustainability measures, electrification of the housing stock is not prioritised, and the government is not allocating additional funds to address the issue of the overloaded electricity grid, which is causing grid congestion. This could hinder the construction of new homes.”

The full report can be downloaded here