Housing Market Monitor: Prices to rise further in 2018 and 2019

by: Philip Bokeloh

  • Transaction volume peaked in 2017
  • Shortage in housing market puts brake on future sales
  • Economic revival feeding further price rises
180104-Housing-Market-Monitor-January.pdf (466 KB)

House prices soared in 2017 and are expected to continue advancing strongly. We think economic growth will receive an extra impulse from government policy in the years ahead. The resulting fall in unemployment alongside rising wages and disposable incomes will make owner-occupied housing more affordable, particularly with interest rates likely to stay low, as is now expected. We previously assumed slightly higher interest rates for the coming years. Against this backdrop, demand will remain vigorous. At the same time, the existing for-sale stock is shrinking and ill-matched to buyers’ needs. Moreover, new build output is trailing behind demand. As a consequence, the housing market will become even tighter. We have therefore raised our price forecasts for 2018 and 2019 by one percentage point to increases of, respectively, 6% and 5%, after the 7.5% rise this year. The shortage in the housing market is putting a drag on transactions. Sales are already falling in areas with the tightest markets. In our opinion, the supply drought will become even more acute and spread to other regions. We continue to forecast a 5% decline in sales, both in 2018 and 2019. The decrease follows an estimated increase of 13.5% in 2017, slightly lower than our earlier estimate of 15%. The projected decline in sales means that the record of 244,000 transactions in 2017 will remain out of reach in the coming years