Housing market monitor: Housing market at boiling point
Price estimates again revised upwards due to higher realisations. Lack of homes for sale hinders number of transactions, but less than previously anticipated. End of decline in mortgage rates will allow overheated market to cool. Pressure on next government to implement structural reforms grows.
We are again adjusting our housing market estimates. The continuing rise in prices means that this year's average will be higher than previously thought. For this year, we therefore expect prices to rise by 15%. Previously, we assumed a price increase of 12.5%. The upward revision of this year's price increase will be reflected in next year's average price increase, so that the estimate for 2022 will also increase from 5% to 10%.
The number of transactions is decreasing, but is higher than expected. That is why we are also adjusting our estimates of home purchases. This year transactions will decline by 5%, next year by 10%. Last report it was exactly the other way around. The net result is that the number of purchases will be slightly higher than expected this year, but next year will be more or less the same as last time: around 200,000.
Transactions are under pressure because there are very few homes left for sale. This makes it very difficult for buyers to find a suitable, affordable home. The lack of supply contributes to the sharp rise in house prices. Many buyers bid above the asking price, often with a generous margin. At EUR 402.000, the average purchase price is now EUR 153,000 above the level of five years ago.
Despite this increase, net housing costs as a percentage of net income remained relatively low. This is mainly due to the decline in mortgage interest rates. But this decline may be coming to an end. Due to increased inflation, interest rates on financial markets have risen. As a result, the costs of mortgage lenders are rising. So far, this has hardly translated into mortgage rates. But that has changed this week.
The slight increase in mortgage interest rates may coincide with new measures from TheHague. Last Budget Day, the cabinet released some money for the acceleration of the construction, but it did not take far-reaching measures. That would not have been appropriate given the caretaker status of the government. But a subsequent government cannot ignore the problems in the housing market. There is a chance that sacred cows will once again be sacrificed, for example with regard to the fiscal treatment of owner-occupied homes. It was the same with the previous Rutte governments.