Weak economy has not gripped housing market yet

The weakened economy has not yet taken hold of the Dutch housing market, which is still strong. The limited number of homes that are put up for sale quickly find new owners. The number of transactions is going up, as are house prices. In light of this, ABN AMRO is expecting prices to rise by an average of 5% in 2021.

According to ABN AMRO housing market economist Philip Bokeloh, the projected continued rapid rise this year is due to the so-called carry-over effect, as the strong price rise in the second half of 2020 pushes up the average price increase over 2021. ABN AMRO expects the predicted increase in unemployment to dampen the housing market.

Bokeloh: “Continued strong figures from the housing market and improved confidence have prompted us to raise our estimates again. If prices stabilise at the current level, the average price increase would be 3.5%. The arrival of vaccines also offers more certainty about the future.”

Although the availability of vaccines is reassuring, Group Economics at ABN AMRO does predict rising unemployment this year. If the government ends its emergency salary subsidies and companies carry out the reorganisations they’ve announced, workers will be laid off. This will have ramifications for the housing market, because the size of the mortgage that buyers can take out is income-dependent. In addition, the stimulating effect of low mortgage interest rates is gradually waning. Bokeloh: “Central banks are still applying stimulus measures, but there’s not much scope for a sharp drop in mortgage interest rates and for making home-buying more affordable.”

The housing market will be kept on its feet in the short term, ABN AMRO believes, by government support schemes and the central banks’ stimulus measures. But according to Bokeloh, the housing market will not escape the underlying economic situation entirely unscathed. The bank thinks that the expected labour market decline and the reduced positive effect from low interest rates will be reflected first in fewer transactions and then in a weaker increase in house prices. The number of house purchases in 2021 is expected to be 10% lower than in 2020. In 2022, ABN AMRO is predicting prices to climb by 1% and house purchases to drop by 5%.