Today, CBS (Statistics Netherlands) announced a y-o-y house prices drop, for the first time in decades. We have seen house prices drop around the globe, especially in the UK and the USA, but also in China. We have seen sales slowing down, foreclosure sales, or no sales at all. We have seen house prices coming down by 10%, 20%, 30%, in some submarkets even more. So, expectations were high. Especially amongst homeowners, obviously.
Prices of existing houses sold in February 2009 were on average 0.5 percent lower than twelve months previously. This is the first reduction since house prices are monitored on a regular basis (January 1995). In the course of 2008, prices of residential property already began to slow down, as is shown by the price index of existing houses, a collective publication by Statistics Netherlands and the Land Registry Office. [] The most substantial price reduction was recorded in Friesland, where prices were over 4 percent down on one year previously.
Ok, so prices are down. By half a percent. Zero point five percent! On average. And the most substantial reduction was recorded in the rural province of Friesland. No less than 4% reduction.
Well, I must admit, this is almost a disappointment. What did I expect? A price reduction of some 5% y-o-y on average. At least. Look at the graph above, for the 2005-2009 period: prices went up by 4-5% in the years 2005, 2006, 2007 and some 3% in 2008. And that is even a low price growhth rate, compared to the 1996-2002 period:
Look at this graph (same source: CBS): a wild guess tells me that Dutch prices in this 7-year period went up by some 10% y-o-y on average.
When an unprecedented global crisis kicks in, after such a housing boom, that lasted for at least 12 years, I am indeed expecting a bust with a bit more a substance. At least more than a decrease of just 0.5%. In my opinin, the conclusion should therefore be: the re-pricing of houses in the Netherlands has not really begun, yet.
On A Peppercorn 
@Stuart: point taken, especially with respect to the limited supply in the Netherlands. And generally speaking, I agree with your statement that the Dutch housing market is a long term growth market.
Housing supply is insufficient, both in terms of quality and quantity, and does not match occupier demands. And as long as this mismatch is remaining, so will the upwards pressure on prices be. This situation applies especially in some submarkets, like Amsterdam.
However, circumstances nowadays have influenced demand, too. Yes, everyone needs a home, but home sales are down, sales periods are extending and supply of homes for sale is up, all due to limited financing recourses and high uncertainty amongst homebuyers.
Your mortgage cost argument is appreciated as it holds for some, but not for all. Most homeowner have fixed their interest for longer terms and may not benefit from decreasing interest rates, or only with a time-lag. Then, homeowners may have other incentives to sell their homes than just financial ones. E.g. moving for another job, unemployment, divorce, migration, family-extension etc. The tax relief is another thing. I am of the opinion that the mortgage interest tax relief has contributed to the current high level of housing prices. Without the relief, prices would be lower in the first place, as people tend to attribute a certain amount of their disposable income (say, one third) to housing expenses. The relief just allows you to pay more. You see examples of the price mismatch at the borders. Final remark, your own situation looks very beneficial and I believe it is. I don’t believe, however, that it represents the overall market situation. Also, the tax relief is officially cut when you rent out your home.
@Maarten: that is exactly my point, I would expect the current ‘economic tornado’ to have a more severe impact on housing prices than ‘just 0.5%’. As said, bearing in mind the price growth figures we have seen over the past decade or so, I would expect a re-pricing of at least 5%.
On a closing note: the Dutch housing market is disastrous, I must say. There are tremendous imbalances between demand and supply, both in rental and sales markets. There is a huge price disturbance due to malfunctioning government policies (social housing system, restrictive building policy and the aforementioned tax relief) causing the market to ‘lock up’. I will follow up on this discussion in due course.
Thanks. Rutger
The limited supply argument is a good one. However, is it reasonable to expect no price declines in the current “economic tornado”? If 0.5% does not impress you, where do you draw the line?
regards,
Maarten
The author misses two key reasons why Dutch house prices will not drop significantly, even in a weak global market:
1) Housing supply is heavily limited in the Netherlands, whereas a lot of the large drops in prices in the US/UK/Spain have been due over-building of suburban developments and inner-city flats.
2) Mortgage costs in the Netherlands are very low thanks to a combination of low interest rates and mortgage interest tax relief. My mortgage payments have reduced to 1/3 of what they were a year ago and 1/3 of the market rental price for my house. In such conditions owners will not be inclined to sell for any significant reduction in price because there is no incentive to do so. They can simply chose to stay at 1/3 cost of renting or, as I have done, rent out their house at 3X their mortgage costs and live off the profits. In such a market selling prices simply will not fall be very much.
As such, while prices may not rise for the next year or two, I also don’t see them falling very much. Once economic recovery kicks-in, there will then be a period where interest rates are still so attractively low that house prices will start to rise again.
Simply put Dutch houses are a limited resource in a long term growth market. Safe as houses!