Housing more affordable with home prices falling faster than expected: Rabobank

Owner-occupied homes are becoming more affordable again despite rising mortgage rates and high inflation. This is due to a combination of falling house prices and the wage increases that many people have received, Rabobank economists said in a new report. In fact, home prices have been falling faster this year than previously expected, and that is good news for house hunters.

“The affordability of housing is improving. That may sound strange in light of previous reports about rising mortgage interest rates and inflation, but homes are becoming cheaper,” said RaboResearch housing market economist Stefan Groot. “Add to that the fact that wages are now rising fast and that people have also started working more. This means that there is more left over to spend on monthly payments.”

Groot also thinks that the capital market interest rates, which mortgage lenders use to determine their interest rates, will fall again in the course of the year. This should lead to slightly more favorable mortgage interest rates in the long term.

A year ago, the housing market was still considered to be overheated, and housing prices rose sharply. But a fall in prices started during the summer when mortgage rates began to rise rapidly. In addition, house buyers became more cautious because of the sharp increase in energy costs since the war in Ukraine. As a result, the purchase of a home last year became out of reach for a wider group of people.

The experts at Rabobank think that house prices will fall faster this year than they previously thought was possible. “We expect an owner-occupied home to be 7.6 percent cheaper at the end of this year than during the peak in July 2022. We previously expected home prices to fall by 3 percent in 2023. We have adjusted that to 4.2 percent.”

According to Groot, it seems that the “bottom” will be reached at some point. “For 2024, we assume an annual price decrease of 1.5 percent. This decrease is the result of price developments in 2023. We expect home prices to remain more or less stable during that year.”

That is not to say that the problems on the housing market have been resolved. There have recently been more homes on the market, but the housing supply is still lagging behind demand. This is mainly because the construction of new homes is not really getting underway, Groot said.

The economist does not expect a housing market crisis like the one the Netherlands faced about ten years ago. This year, the number of people moving in the Netherlands should pick up again.

“Sellers have a bit more fat on their bones due to the large price increases in recent years, the tightened lending standards and repayment obligations. We think that the market will therefore continue to show more movement.”