Dutch housing market slump continues

The Wall Street Journal reported on how the Dutch housing market is continuing to slump.  The slump in housing combined with a decline in exports is leading to a slowdown in the Dutch economy.

While the decline in house prices is not as bad as in Ireland and Spain, there are reasons to think that the decline in Dutch house prices still has a long way to go.

House prices in the Netherlands continued to fall in November, suggesting that the slump in the housing market will continue to disrupt the country's struggling economy next year.
Prices of existing homes fell by an annual 6.8% in November, national statistics agency CBS said on Friday....

Since the peak of 2008, house prices in the Netherlands have tumbled more than 16%, according to CBS. The slump isn't nearly as bad as the busts that have engulfed Spain and Ireland, but it is weighing heavily on the euro zone's No. 5 economy. 

The news followed a string of poor economic data released earlier this week that reflected the economic weakness in the Netherlands. The country's jobless rate rose to 7% in November, hitting a 10-year high, and consumer sentiment is again nearing a historic low, CBS said on Thursday. For 2013 and beyond, the outlook is bleak. 

The Netherlands, seen as one of the "core" members of the euro zone, is facing a long period of economic contraction that will likely drag on until the second half of 2013, according to several official forecasts. 

For the third time since 2009, the Netherlands is about to fall back into recession and some analysts say the crisis in the euro zone will give it a final push. 

"Exports were the key driver for the Dutch economy in the past years," said Maarten Leen, an economist at ING Bank NV. "But exports are falling away too, now that the euro zone is in a recession and the global economy is weakening." 

Mr. Leen noted that private consumption is being squeezed by the weak housing market and government spending cuts, and that it has spread to other segments of the economy. 

"Domestic consumption continues to decline, mainly because of the situation on the housing market. Against this backdrop, companies will postpone new investments." 

Falling house prices have caused an erosion of household wealth and this in turn has led to consumers cutting back their spending. Dutch households are among the most indebted in Europe due to their large mortgage debt.

It appears that there is a negative feedback loop that has the potential for accelerating significantly.

So far, only a small number of households are behind on their mortgage payments, but this number could rise if the jobless rate shoots up. Around 700,000 homes are now worth less than the value of their mortgage, according to government estimates, which means homeowners could suffer a loss if they have to sell their property.