Netherlands faces increasing risk of housing market bubble: Rabobank

houe for sale/sold sign

The risk of a bubble forming in the Dutch housing market is increasing, though it is currently limited to popular markets like Amsterdam and Utrecht, Rabobank said in a quarterly report. Driven by renewed confidence in the economy and low interest rates, home buyers are increasingly buying above the asking price in the expectation that house prices will continue to rise for a long time, according to the bank, RTL Nieuws reports.

Home buyers are increasingly using more of their own money, not so much to pay for a house, but to overbid on the asking price. This is a clear sign of a bubble forming, according to the bank. 

On the upside, people aren't using borrowed money to do this - thanks to more stringent loan norms, which make people borrow less. In the big cities the loan to value rate - the amount that people borrow to finance their home - is even lower than the rest of the country. This decreases the risk that people will not be able to afford to pay off their homes in the event of large price decreases. 

But Rabobank is still concerned. Some buyers are spending a lot of money to buy homes only to rent them out. They are therefore causing price increases that disturb the market. According to the bank, investors' increased interest in the housing market is also a "sing of an over taxed housing market."

The huge price hikes on the market are also causing growing equity inequality, according to the bank. Those who own homes in a good location have it made. While other people - especially people who rent their homes and people with bought homes in less favorable locations - fall behind.

The bank believes that the government and commercial partners' main task in the coming period should be to build more homes. Supply and demand must be better balanced. And the rental market must be restored to a proper alternative for young people who can't afford to buy yet. If this does not happen, a bubble is unavoidable, according to the bank.

Rabobank expects housing prices to continue to rise for the time being. The bank expects housing prices to increase by 7.6 percent this year and 7 percent next year.