February 21, 2023

3 reasons why you should and shouldn't buy a home in the Netherlands (2021)

If I could tell you with a 100% certainty that buying a home today is a guaranteed success that will make you a profit at any time in the future, I wouldn’t be here. I I knew for sure when things would go sour again. I wouldn’t be here. I would have drummed up all my friends and family, went all in with them, sold everything shortly thereafter or right before it collapsed and would have gone and bought an island where I would have invited friends, foes, inspiring people, refugees and others to share happiness with and donated the rest to charity. 

Nothing is certain, but one can look at the developments on a micro and macro level and draw conclusions from it. I believe in being transparent, that trying to persuade people is often counterproductive and that you should never insult anyone’s intelligence or capability to make decisions. Therefore I’m going to just lay out my thoughts for you in case you never thought of it yourself. I’ve listed the 3 most important reasons why I believe you should and shouldn’t buy a home now. For disclaimer purposes, let me specify here that I believe rural areas are affected differently by the following vs. urban areas (the Randstad, Eindhoven etc.) and that EHN is active in the Amsterdam and Metropolitan Area. Either way it’s an interesting time as any to buy or not to buy. Here we go.

3 reasons why you should buy a home now

1. Money is cheap

Borrowing money is cheap at the moment. For a mortgage of 100% of the purchase price with a set interest rate for 10 years interests range from 1,83% to 2,57%. For a 30 year set 100% mortgage, the interest rates range from 2,81% to 4,1%. Knowing that in 2007 interest rates were around 5% this means that you can currently borrow money at attractive conditions. The European central bank is furthermore preparing for another decrease of the interest rates which is an indication that the interest rates of the banks aren’t going up any time soon. Who knows, they might even go down more.

2. Populism is on the rise 

Brexit/Boris Johnson, Trump, Bolsonaro, Duterte. The political landscape is changing in some of the biggest economies in the world. These were just a few examples. When populism banks on peoples’ fears it creates polarisation. And polarisation is not fertile ground for a welcoming narrative and economic stability which result in a less attractive place to store your money, company, employees, family. The countries that are tolerant actually benefit from this development. The Netherlands being one of them.

3. Infrastructure planning takes time and costs money 

Unless your China, planning further ahead than the actual time spent in government is not something we’re particularly good at in the Netherlands. Both on a national and on a regional level. This has led to a structural shortage of homes. If we continue to build less houses than are necessary and also keep a pro-cyclical approach to development (less in crisis, more in good times) we will continue to create a shortage of housing. For once we realize we need to build extra, it’s too late and too costly and prices will continue to increase.

Now. Before you get all enthusiastic, let me also share 3 reasons why you shouldn’t buy a home now. At the end of this you can make up your mind and decide what your next move is.

3 reasons why you should not buy a home now

1. A economical correction is due

According to Clément Juglar (1860) economic cycles are 7 to 11 years long. With the GFC being from 2007/08 we’re quite overdue. Some say that it might jump the cycle this time, where others claim that we’re ripe for a big one. In my previous point I mentioned the ECB lowering the interest rates. The FED (US) is also preparing to lower the rates. Lowering interest rates is one of the strongest tools the central banks have to help the economy back on its feet when a recession hits. However if there’s little to no room left to lower the rates, which is the case with the ECB, what’s left? This is just one small thing. Because a recession has to come from somewhere. Choose your pick. The trade war between the US and China, or a slowing economy of China who has to keep it’s ever growing middle class happy, not to mention Brexit and it’s dysfunctional and delusional government.

2. Too bubbly

Housing prices continue to increase, but is it sustainable? As long as there’s a discrepancy between supply and demand, money is cheap, and owning a home is promoted through the Dutch interest deduction scheme there’s still room for prices to grow. Reason for a bubble? Could be. Because the intrinsic value is no longer relevant when supply/demand is leading and when something is hot people want to get in on the action which amplifies the effect. But what if supply/demand suddenly changes? What if some of the above mentioned motivators are no longer in place? What if salaries don’t increase as much as the price of homes and the banks stick to their current loan to income calculation the number of people that can buy will decrease.  

3. Governmental interference 

When things get out of hand governments are prone to interfere. It looks good on them for tackling popular issues. And since a shortage of housing or not being able to afford a home is something that has a direct impact on people’s standard of living and happiness it is a point of attention that will definitely grow as the market overheats. Australia is a great example of this. But also Berlin has joined in on regulating the housing market. These regulations have a direct impact on how accessible or attractive a market is which could impact the value of your home.

I promised you that I would lay out my thoughts. Now it’s up to you to decide what to do with it and what the next steps are. These are just the top 3 of my why and why not and I’m conscious that there are many more reasons and insights that are useful.  

Don’t hesitate to ask any questions about the above, share your thoughts or add new insights.

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