Home price declines over; Increase expected for next year: ABN Amro

The price correction in the Dutch housing market is over and ended at a higher level than ABN Amro expected. The bank, therefore, adjusted its price estimates. This year, the bank expects home prices to fall by 3 percent instead of -5 percent in the previous estimate. And next year, home prices will rise 2.5 percent instead of falling by 3 percent as previously thought.

“Despite poor sentiment in the housing market, prices appear to be rising again after a decline,” ABN Amro said. Home prices are still 4.3 percent lower than the July 2022 peak, but the price index has risen slightly for four months.

The end of the price correction is due to the tight labor market, the “historically large” housing shortage, faltering new construction, and stabilizing mortgage rates, ABN Amro said.

The bank noted that homes with a low energy label saw bigger price declines and rebounded more slowly. “This effect will intensify when next year the energy efficiency of a home is included in lending standards,” ABN Amro said. “The big challenge is to build enough new energy-efficient homes and to make the existing housing stock more sustainable.”

Housing affordability remains moderate, the bank said. “Interest rate hikes worsened affordability. The price correction that followed slightly improved affordability. The accompanying wage increases further improved affordability.” However, the price decline and wage increases only covered part of the deterioration caused by the interest rate hike.

Faltering housing construction is putting transactions under pressure, ABN Amro said. Political uncertainty after the fall of the Cabinet - specifically around outgoing Housing Minister Hugo de Jonge’s plans to regulate part of the free sector rentals - is preventing new housing construction. Increased costs of labor, materials, and building lands, and higher interest rates also play a major role.

“Due to a lack of new homes, the throughput in the housing market is drying up, which is depressing the number of transactions. Our estimates for transactions remain the same at -5% in 2023 and -2.5% in 2024.”