When might it be a good time to buy a house? When the housing market is shooting up (like it has been doing since 1990)? Or when we are amidst a financial crisis as we are today?
According to the Dutch Association of Real Estate Agents (NVM) there are currently seven reasons to buy a house right now. In this article I look at five of these (the last two regard why you should enlist the services of a NVM Agent). I follow this up by giving you some reasons why it could be better to wait on buying a house and I finish by giving my own personal view of things.
- A good reason to buy at the moment is that interest rates are low. Interest rates determine one’s monthly payments and at the moment the rates are attractive. Variable rates of below 3% can even be found, but of course variable rates are not suitable in all circumstances. (For this decision-making process I refer you to last month’s article in this newspaper).
- Another reason why the present could be an excellent moment to find your dream house is that there is a larger choice of houses on the market. Houses are currently also on the market for a longer period and the potential house buyer thus has a greater chance of finding the house that perfectly matches their wishes and financial possibilities.
- House prices have now dropped to more realistic levels. Over many recent years the housing market has been overheated; asking prices of houses were determined more by emotion rather than the intrinsic value of the property. At the moment you stand a very good chance of paying the right price for your dream house.
- Another advantage of the current financial status (read crisis) is that you are in a much better position to negotiate. The housing market is today clearly a buyer’s market. Up to the middle of last year, especially in the Amsterdam and The Hague areas, potential buyers were falling over each other to be first in with a bid. At the moment you can take your time and bid well below the asking price (probably a good idea to have your own real estate agent for advice on the best opening bid).
- Owning your own home is a good investment over the longer term. Over many many decades house prices have almost always bettered inflation figures. Even though there will always be periods of declining house prices, also in the future, the long term has always seen excellent returns on investments in your own home.
Of course we can also come up with reasons not to buy your own home right now, Expat or not. The main one being that if you buy a house now and you are forced to sell your house whilst the financial crisis is still running riot, you may be stuck with a house worth less than the residual mortgage owed to the bank! You would need to be ‘in the market’ for a few years yet, but perhaps not as many as you might think.
So we have had our calculators steaming. For example, up until recently, if you could keep a house for at least three years, you would earn back the 10% buyers’ costs (kosten koper or k.k. in NL). But how sure can one be of this increase in house prices for the next couple of years? Another reason to be concerned about buying right now is that you may lose your job! Imagine buying a house right now and getting fired! Not an attractive thought.
However, for all the scary dangers, there are solutions. For instance, if you have to leave the country unexpectedly, some banks will actually allow you to rent out the property (on the condition that they have some say as to whom you rent your property, for what amount or under what conditions). And you may actually be able to obtain insurance to pay your mortgage installments should you lose your job (here certain conditions may apply). Such an insurance normally also covers disability to work.
Another reason to consider buying your own home is that there is still a shortage of housing in the country. The reason the housing market is not as boisterous as it was during the last decade is largely based on emotions. The Dutch are apprehensive to buy right now because they worry about their jobs, so the market is not ‘moving’ as it used to. And, this is a point to consider: not enough new houses are being built to cover what is actually a shortage on the housing market. According to the Central Bureau of Statistics in The Netherlands by 2025 (only 16 years away!) the number of households will increase by 800,000! All of them will need a place to live. And the majority will want to live in … the western part of The Netherlands , aka (also known as) Expat country.
In The Netherlands, tax payers may still deduct mortgage interest payments from their income tax. Will this continue forever? Probably not, but it is a consideration in the decision whether to buy now and not wait until mortgage interest deductions are cut or abolished. And the Dutch Government still gives guarantees for mortgages for the cheaper end of the market, depending on income and so on (National Mortgage Guarantee or NHG in Dutch).
Another point to consider is inflation. 2008 inflation was 2,5% – lower than other countries in the Euro zone. It is hard to predict whether there will be inflation this year. But inflation is something that will always come back and continue in the long run. Inflation is not good, and especially if you have money sitting in the bank and or you are renting a house. But inflation is very nice if and when you own your own home. Inflation has the wonderful effect of reducing debt (and in parallel, the nasty habit of decreasing the value of your savings). Combine this in the long term with a house value that increases as a result of inflation, and a (fixed) debt that declines for the same reason and sometime in the future (not too distant one hopes…) you will be delighted with having made the scary decision to buy a house or apartment in The Netherlands, and bravely at this wondrous point in the economic cycle.