Coronavirus to decrease home prices in NL: ABN Amro
After years of skyrocketing prices and ever increasing home sales, the coronavirus and measures to curb it will be a blow to the Dutch housing market. A combination of side effects from measures to flatten the Covid-19 infection curve will result in far fewer home sales this year, and home prices falling next year, ABN Amro said in a report on Tuesday.
The measures needed to curb the spread of the coronavirus will definitely result in a recession this year, central planning officer CPB already reported. That will result in unemployment rising, which puts disposable income under pressure. That, in combination with an expected rise in mortgage interest rates, makes owning your own home less affordable, ABN Amro said. The uncertainty on the financial markets also means that investors will be more hesitant to buy property, according to the bank.
"As a result of the fall in demand, the until recently very strong price increase will turn into a decrease in the average price level next year," ABN Amro said. "Given the uncertainty about the duration of the precautionary measures to curb the virus, there is little point in providing estimate for house prices and house purchases."
The most that can be predicted at this stage, is what direction house sales and prices will take, according to the bank. And that is downward. "We anticipate a sharp decline in the number of house purchases this year and a slightly less sharp decline next year," ABN Amro said.
As a weakening of the housing market usually first manifests in sales and then in price, price declines will take more time to show itself. The bank therefore expects that prices will show a modest increase on average still this year. "This is mainly due to the so-called spill-over effect: last year's sharp price increase is reflected in this year's average price level," ABN Amro said. "However, house prices will fall next year."
The price drop will mean that, like with the financial crisis of 2008, households will again be flooded by their mortgage. Though ABN Amro expects that the number of households in trouble will rise less rapidly than during the credit crunch. This is because of the sharp increase in prices over the past years, because most home buyers now actually repay their loans, and because households are now allowed to borrow less than in the run-up to the credit crisis, compared to the value of the collateral.
But, the bank warned, "if house prices fall further in the coming years, for example because the economic downturn is taking longer than expected, more homeowners will be flooded by their mortgage."