House prices in the Netherlands will go down by 6.4% between now and the end of 2024, as higher interest rates and the cooling economy impact on buyers, the Dutch central bank said on Monday in its latest economic forecasts.

Nevertheless, there is no real cause for concern and economists do not expect a housing crisis similar to that of 10 years ago, when hundreds of thousands of home owners faced negative equity, the central bank said.

This, the bank said, is because many home owners have fixed their interest payments at a low rate for a longer period and because of rising salaries, which will allow buyers to borrow more.

The Netherlands will be in a slight recession in the coming months, due to high inflation and the downturn in world trade, the central bank said, in line with forecasts made by other agencies.

Economic growth reached 4.2% this year, in the wake of the coronavirus pandemic, the central bank said and the economy will grow by 0.8% next year and 1.6% in 2024. Inflation will fall, partly due to the energy price cap, but will remain high at around 5%.

Unemployment will stay low and the shortage of workers will still be a problem across most sectors. Wages are likely to rise by an average of 5% in 2023.

Spending power

Government measures to shore up spending power, such as the energy price cap, will have an impact on the budget deficit, which will rise sharply in 2023. The government’s finances are not in ‘the danger zone’, although budgetary discipline should be brought back, the central bank said.

The central bank also called on the government to focus its extra support on households which risk getting into financial difficulty and to limit its aid to energy intensive industries.

Efforts should also be made to encourage more households and business to become more energy efficient, as long as government, employers and unions work together to ensure enough qualified staff.

In an alternative scenario, in which world trade continues to decline, economic growth would be reduced by 0.8 percentage points, while inflation would remain at around 9%, the bank said.