Housing Market Monitor – Recovery shifts into higher gear

by: Philip Bokeloh

Sales growth forecast for 2016 raised from 10% to 15%. Stimuli: interest rates, catch-up demand and income criteria for dual earners. Brexit creates uncertainty for long-term outlook.

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The housing market recovery is continuing without showing signs of slowing down. While prices have more or less developed according to our expectations, sales have surpassed our forecasts. The key reason for a stronger than expected recovery of sales is the sustained decline in mortgage interest rates. As a result, taking out a mortgage is more affordable and catch-up demand is galvanising sales. As home owners are increasingly clearing their negative equity thanks to rising prices, they are becoming more mobile and home removals are picking up steam. Moreover, dual earners are benefiting from the new income criteria issued by Nibud (the Dutch National Institute for Family Finance Information). When determining a borrowing limit, allowance will now be made for half of a household’s second income; previously, this was one-third. The new rule provides additional financial leeway for home buyers. With the strong sales increase in mind, we are again raising our forecast for this year’s housing market transaction rate, from 10% forecast earlier to 15%. Our forecast price increase is left intact at 4%. Our forecasts for 2017 also remain unchanged at 5% for the transaction rate and 3% for prices. Given the Brexit, we see no reason to raise these forecasts as well. The outcome of the UK referendum is creating economic uncertainty, which, in time, is more likely to be detrimental to the housing market than beneficial.