Dutch housing market still not good

Today’s NRC Handelsblad reports on the latest data on housing prices by the Dutch Statistics Office (CBS). The decline in housing prices is apparently a bit smaller than befor but compared to September 2012 houses are 4,1% cheaper.

But the graph in the newspaper article shows just how big the decline has been since the peak in prices in 2008. It may be a matter of time to see the influence of this development in mortgage defaults.Image

N.B. this graph shows the changes relative to the previous month.

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3 responses to “Dutch housing market still not good

  1. Hannu Ruonavaara

    Decline in house prices does not actually have so much to do with mortgage default but it has a lot to do with another nasty problem, negative equity. Mortgage default can be a result of loss income or rising loan interests: the household is not anymore able to pay the mortgage.

    Declining house prices can result in negative equity to households who bought at the height of the housing market boom: the current monetary value of the house is below the amount of mortgage they have taken. In such a situation there is not much economic sense in selling the house as that would happen at a loss. Sometimes households in such a situation are compelled to sell the house, for example, because of problems in paying the mortgage.

    These two problems, mortgage default and negative equity, are quite different. Mortgage default is an actual problem, directly experienced. You usually do know that you are behind your payments and the bank is eager to remind you about that. Negative equity is a potential problem that becomes actual if one is selling the house or is using the residential property as a collateral of a loan. If you are not selling or taking a loan, you do not necessarily even know that you are hit by negative equity.

    • Good point, thanks. The missing link between the two is the bad economic situation with increasing unemployment – people would want to move to cheaper real estate but they can’t, because they may have negative equity and in the Netherlands there is by default (not anymore) such a thing as cheap housing.
      But you are entirely right about the negative equity aspect. Also in the Netherlands many mortgages/houses are ‘under water’ in equity terms and that is not a good thing.

  2. Pingback: Dutch AAA credit rating gone – no surprise actually | Arjen polku

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