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Housing market intact despite historical economic downturn

Published on 08-10-2020
"The most recent housing market figures are still positive", Philip Bokeloh Senior Economist at ABN Amro reports in the bank's most recent Housing Market Monitor. The number of transactions continues to increase and the price increase in August reached the highest level of 8.2% in the past eighteen months. And that while the Dutch economy has been hit hard. But what are the outlook?

The main reason for the good results is the fall in the mortgage interest rate. Risk premiums on financial markets rose in April, but fell again thanks to government support measures and strong central bank intervention. Lenders can attract money cheaply, resulting in a sustained fall in mortgage rates.

Corona crisis
The Dutch economy has been hit hard. In the second quarter, GDP contracted by 9.4% compared to the same quarter last year. Activity will also be under pressure in the coming quarters due to a drop in demand and disruptions to the production process due to corona.

Unemployment will rise
In recent months, government support measures have kept companies afloat and employees keep their jobs. But this aid is an obstacle to adaptation to the new situation. That is why the government is gradually reversing the support measures from 1 October. As a result, unemployment will rise faster than it is now. Several large companies have already announced reorganisations.

With rising unemployment, many families will experience a decline in income. The recent improvement in the affordability of the housing market will then turn into a deterioration, especially when the interest rate decline has come to an end and no longer contributes to better affordability.

The expected deterioration in affordability may still take some time. If the financial markets are calm, mortgage interest rates could be lowered a little further.

Housing market so far little trouble
The housing market has so far been little affected by this gloomy outlook. The number of transactions remains high. In the first eight months of this year, 148,000 existing homes were purchased, 5% more than last year, according to CBS. Purchases are also increasing in new-build homes. Based on NVB figures, the number increased by 12.5% ​​in the first eight months of 2020 to 22,500.

Read the full article by Philip Bokeloh here.