Higher interest rates, lower prices

Mortgage interest rates – after a “summer dip” – are climbing back to their higher pre-holiday levels. De Hypotheekshop reports a rise in mortgage rates to 4.04%, as high as at the end of June. This is, of course, due to the increase in interest rates on the capital market. As a result, lenders themselves have to borrow at higher interest rates on the money market. To preserve their margins, they naturally pass them on to mortgage borrowers. Yet, historically, interest rates are still not “sky-high. For example, those who fixed their mortgage rates for 10 years between September 2012 and September 2014 still pay a higher interest rate than the current rate of 3.6% with NHG (National Mortgage Guarantee), says a spokesperson for Van Bruggen Adviesgroep.

The interest rate increase does mean that the average housing consumer can borrow less. And, of course, it was mainly those low mortgage rates that kept the housing market going somewhat in a time of exorbitant price increases. So the main question now is whether higher mortgage rates will have a moderating influence on house prices. Some influence will certainly be there, partly in combination with the tentative supply increase we have seen in the first half of the year. On the other hand, housing demand remains high due to population growth and (building) land is still scarce. In addition, employment is high and CLA incomes are going up.

I have said before that the housing market will start moving back toward “normal. The first effect of rising interest rates and slightly decreasing demand is that there will be less frequent and less frequent overbidding. Supply will remain tight, but buyers will be more cautious than they were a year or two ago. This may indeed lead to moderation in prices, but of course the rates of increase we saw last year (up to 20%) were not normal either. Rabobank forecasters see another 15% increase in value this year, but expect a “limited decline” by the end of next year. I think both expectations are greatly exaggerated. Flattening of the price increase and stabilization I do expect. But tightness remains high and that usually has an upward effect on prices.