Mortgage Interest Rates
What is the effect of the increasing mortgage interest rates on the current housing market?
A reduced surplus value: that iswhat sellers have to take into account when selling their house. When we look at the increasing house prices of previous years, the question has always been; when will this come to an end?
The affordability of properties, mainly for starters, is a hot topic which pops up in various discussions on a regular basis and has become a headache for the politicians who sometimes have to make unorthodox decisions in an attempt to regulate the market. Real estate agencies are often seen as the price drivers, whilst in fact the principle of demand and supply and the low interest rates ( “money is free” ) are the real causes.
The current situation in Amsterdam is that the amount of viewers for properties has decreased drastically. We see this in all price categories. On the other hand, the offer of properties has increased in recent weeks, end May-beginning June. Home owners put their houses up for sale earlier than planned in order to still achieve a good result in the current, still strong, housing market. This change happened so swiftly that even professionals are stunned.
On top of that, we see that, in the starters market, there is a strong decrease of Dutch buyers. The viewing requests mainly come from foreign candidates who have a tax advantage, which gives them a strong financial advantage in comparison the Dutch candidates.
It is difficult to predict how this situation will develop but with a larger offering, the market will become more competitive and the buyer will have a more options to choose from. What will the inflation do and what will the ECB decide after the summer? After another interest rate increase, it is very likely that the mortgage interest rates will continue to increase and then, with a larger offering, there will be a price correction.
The start of the chain is the most vulnerable: an increase of the mortgage interest rate hit home seekers from two sides. On one hand, they will be able to lend less and on the other hand, the monthly mortgage costs will be higher. We see that this mainly hurts young professionals and single earners. In Amsterdam it has become almost impossible to buy a property as a single earner. As a result the demand will decrease or even disappear entirely. The behavior of extreme outbidding, which we have seen in the last few years, will also decrease.
Potential buyers are going to look at properties more critical again and bid accordingly. This is not necessarily a bad development, it brings us back to a more realistic housing market where the price vs. quality are more in line. However a strong decrease of the housing prices is not really happening. Regardless of the current decrease in demand, the crisis in the housing market is not over. The shortage of housing is still evident.
Realtors with a longer track record are not unknown with this phenomenon. The challenge for realtors now, will be to manage the expectations of their clients even better. Knowledge of the housing market and optimal positioning of the property in the market will be even more important than before! *This article was also published in the Vastgoed Actueel magazine. Publication 8th July 2022
