In the Netherlands the current economic crisis is most acutely felt by those trying to sell their house: Nobody's buying. This is not a huge surprise, given the governments measures to curb mortgage lending (no more mortgages of 120% of the value of the house) and unclarity about the future of tax deductibility of mortgage interest.

But there's another reason, one that is left unspoken by all, but which all know to be true: Houses aren't worth the prices asked for.

In recent years the OECD published a report stating that house prices in the Netherlands were overvalued by 20%. When I read that, I was convinced this was a underestimation. That conviction is now corroborated by a report by William Xu-Doeve: The Overvalued Housing Market in the Netherlands: A Conspiracy of Silence (pdf).

The report concludes that the housing market for owner-occupiers in the Netherlands is overvalued by around 100%. House prices are twice as much as is sustainable in the long term. In addition, mortgage related household debt is already in excess of 100% GNP and easily exceeds Mediterranean sovereign debt levels. And it is still increasing.

The cause of this aberration is firmly put on the doorstep of government. Government interference in the housing market since the late 1980's have destabilized the market, causing prices to spike. The current crisis has seen house-prices drop a little (the report puts it at 5% year on year). But there is no sign yet of a downward price-correction of around 50%, something the author thinks necessary to bring housing market prices back in line with long-term sustainable levels.

However, such a price correction, whether in the form of an uncontrolled crash or a long down-ward slide, will prove to be destructive for the economy, the financial sector and for Dutch society.

Isn't that just lovely news on a Sunday morning?


4 opmerkingen:

Josh zei

Although bad for the economy, this situation is not sustainable and must be dealt with. The Netherlands have the largest private debt in the EU (I believe it's up to 240% of GDP). So either way, the Dutch economy will suffer in the long run anyway; either by interference now, which will cause a shorter periode of (extreme) economic and in some cases financial suffering, or by prolonging the current situation, postponing or prolonging the actual suffering. It's the discussion of the band aid: pull it off rigurously or slowly. Let the pain come now and be over with.

Fredy zei

Apparently nobody is selling either; otherwise prices would have
to go down. It seems that as long people can pay for their mortgages, not much
movement will happen.

The US situation is very different from the Dutch market,
because of their foreclosure rules. US foreclosure rules protect lenders, in
Holland banks are protected. In the US it’s possible to leave your house when
it’s worth less than the mortgage and don’t pay for the difference. In The
Netherlands can’t lose their mortgage debt like that, it will follow them
through their dead.

And let’s not forget, it is only a few years ago, that a
housing shortage was predicted in The Netherlands because they did not build
enough of them. Just imagine that the US economy starts recovering, Obama is
gone, we bomb Iran, China collapses, Russia is put in her place again and we all
might have a whole different outlook on the future and ditto housing prices.

Klein Verzet zei

Well, house prices *are* falling. Last year on average prices fell by 3.4% (see here). My guess is they are falling so slowly, because nobody is willing to face facts. I've read somewhere that today's house prices are comparable only to house prices during the hight of the Tulip Mania. That fact alone should tell you there is something not quite right about the housing market today.

Just walking around any random neighborhood can tell you there are enough people trying to sell. Those that accept they will lose on the deal are the ones that have a fair chance of closing it. Those that still think their investment deserves a profit don't sell and are stuck.

I don't think a shortage of supply is the issue in NL. You don't hear many stories of young families lving with their parents because the houses aren't there (unlike in the 1960's). Rather the abundance of cheap money (interest only mortgages, 120% mortgages) have put upward pressures on real estate prices.

In Germany neither interest only mortgages, not mortgages covering more then 90% of the value of the house are allowed. And there the house prices are about half of comparable houses just across the border in NL. That's a pretty big indicator, I believe.

Fredy zei

Yes, prices are falling, but still not crashing. And let’s not
forget we have had falling house prices before, but prices have since fully
recovered and risen to new heights... When markets are most depressed, smart
people start buying ;-)

But sure this is a buyers’ market, maybe it will crash, and
we all get burned, but maybe not. If it doesn’t, the market could even totally reverse.
As builders have stopped building and local governments have slow bureaucratic processes
for zoning. Thus with the statistical likely economic turnaround, this could quickly
reverse into a sellers’ market again, as house buying all depends on peoples
future expectations (beside banks willing to lend money).

BTW those Dutch building regulations, especially the zoning
laws (landschapsbescherming) make it very hard to build houses in The
Netherlands. That might be also a good explanation for the price difference in the
rural border areas. I would say it would be more interesting to look for price
differences in city areas, because unlike Germany most people in Holland don’t live
in rural areas but nearly always in or close to cities.


Anyway, watch does falling unemployment numbers in the US, if
it does not save Obama, it might save the world ;-)

BTW, best vid of the week (leftwing, but still right on target, that gives me good hopes for the future!):