“And you don’t have to be a Nobel Prize-winning economist to see that demand for real estate is collapsing due to rising interest rates, high inflation and energy uncertainty,” he says, but he’s not surprised. “If you look at all the confidence indicators from the summer, especially the German consumer confidence, they are at their lowest level ever.”
Even lower than during the financial crisis, Brzeski points out. “The energy crisis and the war had a huge impact, resulting in interest rates going up 250 basis points,” he continues. ‘These also translate into higher borrowing costs for mortgages, and people are afraid of that. People have to recalculate whether they can afford a house, and then come to the conclusion that it’s best to put it off for a while.’
Not just consumers
According to Brzeski, the entire housing market is being affected, and not just consumers looking for a new home. “Prices for the housing market were already down in the third quarter, quarter over quarter, and the GDP numbers are the estimate for the fourth quarter of transactions, and it makes perfect sense for it to be lower.”
Brzeski then draws the comparison with the Dutch real estate market. “Just like in the Netherlands, the German real estate market has grown enormously in recent years,” he continues. ‘There have also been price increases sometimes of ten percent on an annual basis, so living and houses have also become very expensive. And now you get a dichotomy.’
Dichotomy
According to Brzeski, this dichotomy consists of existing buildings and new buildings. “This existing construction is difficult to finance, and while new construction may be an option, prices are also rising due to rising costs,” the situation explains. “The extra costs are in energy and building materials, and the consumer or investor can no longer afford the higher prices at the moment.”
It’s a trend that could extend to the Netherlands as well, thinks Brzeski. “Every country is different, especially when it comes to real estate,” he continues. ‘But interest rates have also risen in the Netherlands – after all, it is a eurozone country, and ECB policy applies to all eurozone countries. Thus, interest rates on mortgage loans have also increased.
Brzeski is not sure that a similar situation will occur in the Netherlands, but he does not rule out the fact that people have less money to spend and that this will be reflected in a lower demand for real estate for other European countries.