While Covid-19 is causing a severe economic contraction worldwide and Dutch consumer and producer confidence are experiencing the largest MoM decline ever, the Dutch housing market seems relatively unaffected so far.
Download the full Dynamic Credit Quarterly Update 2020-Q1 here.
As concrete data on the economic fallout of Covid-19 has started to emerge, all indicators for the eurozone economy point to a deep recession: in April, the Purchasing Managers’ dropped further to an all-time low of 13.5, from the already poor March level of 29.7. Moreover, the first quarter saw eurozone GDP decrease 3.8% YoY and the inflation rate fall 30 bps from March to April. Given such data, analysts have started to even consider a scenario with possible deflation, as the demand shock outweighs the supply shock and oil prices appear to remain at historically low levels.
“The lockdown measures taken to flatten the Covid-19 curve have an unprecedented impact on all economies, including the Dutch, around the world. In this edition, we focus on the monetary and fiscal measures taken to keep the economic infrastructure as intact as possible with a focus on the housing market. Furthermore, to put the current Covid-19 pandemic into a historical perspective, we show the impact of past epidemics on the housing market in several cities, including Amsterdam.”Jasper Koops
Unaffected housing market
While it is too early to look at lagging indicators such as the Dutch House Price Index for the impact of the virus, other variables show that the Dutch housing market remains very tight due to persistent demand and a decline in supply. Moreover, market players have started to rely on digital alternatives (e.g. digital signatures and online house viewings) to mitigate the impact of the virus. However, it is well possible we will see more serious effects in the 2020-Q2 data. Dutch homeowners have become less enthusiastic about moving and the expected value of their property.
In line with 2019-Q4, the most competitive mortgage interest rates decreased on average by 13 basis points quarter-on-quarter across all major risk classes and all major fixed rate periods. Lower rates have been decreasing the most as a result of new players backed by foreign banks becoming (more) active in that segment.
Despite the decreasing mortgage rate environment throughout 2020-Q1, mortgage spreads have increased across all major risk classes and major fixed rate periods as swap rates (used for determining the mortgage spreads) have decreased more than mortgage rates. The average spread increase across major fixed rate periods and risk classes was 8 basis points, a stark contrast to the spread decrease of 46 basis points in 2019-Q4.
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Disclaimer Dynamic Credit Partners Europe B.V. (‘Dynamic Credit’) is a registered investment company (beleggingsondernemingsvergunning) and a registered financial service provider (financieel dienstverlener) with the Dutch Financial Markets Authority (Stichting Autoriteit Financiële Markten). This presentation is intended for informational purposes only and is subject to change without any notice.The information provided is purely of an indicative nature and is not intended as an offer, investment advice, solicitation or recommendation for the purchase or sale of any security or financial instrument. Dynamic Credit may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented herein. Dynamic Credit cannot be held liable for the content of this presentation or any decision made by a third party on the basis of this presentation. Potential investors are advised to consult their independent investment and tax adviser before making an investment decision. An investment involves risks. The value of securities may fluctuate. Past returns are no guarantee for future returns.