Rising Home Prices

It will not have escaped many people that housing prices in the Netherlands are continuing to rise sharply. Not everywhere equally as fast, but they are going up everywhere in the country. How have prices changed in recent years? And how has affordability changed due to these rising home prices? I’ve made this post in the past (In Dutch, hence the Dutch graphs), before I killed the blog a few years back. But I was curious to see the changes of the past few years in light of inflation and rising median income. Hence, an update!

Historical Home Prices and Median Income

Because there is a huge variation in the different local housing markets, and because there are few figures available for the local markets, I am forced to use average home prices for the Netherlands. The same applies to wages. These will be higher in large cities like Amsterdam than the national average. That also makes sense considering the relatively high purchase and rental prices in our capital. But to make a national comparison, I have limited myself to the historical annual median income.

After some searching, I managed to find various data from CBS and the mortgage shop (de hypotheker) & the Van Brugge Adviesgroep. With this, I have created several overviews with historical housing prices, historical interest rates, and inflation. From 1970 onwards it looks like this:

Here you can clearly see that both the 5-year NHG mortgage rates (grey line – left axis) and inflation (yellow line – left axis) have had a downward trend over the past 52 years, until they didn’t! The average housing price (orange line – right axis), on the other hand, shows a continued increase. But has affordability (expressed as the average housing price divided by the median income) also become less attractive?

As you can see in the graph above, affordability (blue line – left axis) has not really improved over the past decades. The current affordability (2024) is now well above the level of 2007 (the previous high), but has been somewhat steady over the past few years. Mainly due to the rise in mean income, as a compensation due to high inflation after what happened in 2022. In the Netherlands the ratio between mean income and average house price is now over a factor 10!

Normalized Housing Prices

Sometimes it is useful to normalize the figures. This means that you “equalize” them relative to a starting year. In this case, 1970 (= 100%). This includes inflation and increases to compare the different years. For completeness, I have also included the average 5-year mortgage rate (with NHG – yellow line).

What you can clearly see in the graph above is that there was a period in the late 1970s with very high interest (yellow line – left axis) rates, high housing prices (blue line – right axis), and poor affordability (green line – right axis).

In the early 1980s, interest rates shot up, and houses became less affordable. As a result, (normalized) housing prices fell. Later in the 1980s to mid-1990s, houses were relatively affordable, despite the relatively high interest rates. From the mid-1990s, you see a strong increase in housing prices. This continued until 2007. Only after the financial crisis of 2007-2009 do you see a decline in both (normalized) housing prices and the affordability factor.

However, since about 2013, there has been a clear turnaround in both housing prices and affordability. Mainly driven by Quantitative Easing (massive injection of money into the financial system). As for the affordability factor, we seem to have reached a bit of a plateau over the last 4 years. Not sure if the affordability factor can become even worse in the future, but we will see. In the mean time the absolue housing price is continueing to go up. Whereas interest rates have seen a peak for now and are slowly declining again. But what happens in the future is subject to how inflation is going to develop. And because my glass ball is broking, I’m going to have to wait and see what happens.

Meetups

On another note, we are having two days of meetups this weekend in Culemborg. All 50 tickets were sold out in about 24 hours, which is insane. There is clearly enough interets to do this again in the future. No dates yet for the next meetup, but will keep you posted!