The steadily rising house prices may come to an end this year. A monthly decline is even possible, writes the Central Planning Bureau (CPB) in a report published on Tuesday about risks in the financial system.
A fall in house prices is especially possible if mortgage interest rates continue to rise, making the financing of a house more expensive.
Earlier estimates by the CPB assumed further price increases in 2022, but smaller increases than in 2021. It is difficult to predict the turning point to a decline, emphasizes the Central Planning Bureau.
In addition to the interest rate rise, the risk of a contraction of the Dutch economy, a recession, is also a possible reason for a fall in house prices.
Falling house prices are not necessarily seen as a risk at the CPB. On the contrary, a correction is healthy after continuous years of price increases since 2013.
That was the end of the financial crisis of 2008. Between 2008 and 2013, house prices fell by about 20 percent. Such a decline is not expected now, if only because the housing market has been in better shape since then. For example, there is a repayment obligation and the borrowing standards have become stricter.
Problems if houses are flooded
Some of the homeowners get into trouble if their home is ‘underwater’. In that case, the mortgage is higher than the value of the home.
If house prices fall by a fifth, 23 percent of homes will be flooded and 14 percent of homeowners will not have enough financial resources to absorb the residual debt, the CPB has calculated.
If house prices fall by 10 percent, 7 percent will run into problems with a possible residual debt.
It should be noted that such a residual debt only arises if the house is sold.
Banks run little risk if prices fall sharply
Banks, for whom the mortgage portfolio is very important, run a little risk if house prices fall sharply, the CPB writes. The share of defaulters has traditionally been small in the Netherlands and part of the risks are covered by the government through the National Mortgage Guarantee.
Monday showed once again how fast house prices continue to skyrocket. In April, the increase was on average 19.7 percent compared to a year earlier, the Central Bureau of Statistics (CBS) and the Land Registry reported.
However, the increase has been slowing down in recent months and it now appears to be stabilizing.
