Is the current inflation crisis a blessing or a curse for the real estate market?

Spectacular price increases in the real estate market. A flood of prospective buyers looking for their spot under the sun—which was blazing hot in July. A brief explanation of the current state of our industry.

The COVID-19 Pandemic and Its Psychological Impact

In most cases, the economic uncertainty that accompanies a crisis leads to greater caution in consumer spending.

However, many young families felt it was important to start looking for a home with a garden right now, as a way to prepare for whatever the future might hold.

Regulatory authority

The government's communication and support measures helped to provide some reassurance, including regarding the possibility of job losses in the short term.

Generations support one another

In addition, many young families found support from parents and grandparents who felt it was important to help their children through these difficult times. Belgium has a large amount of risk-free savings, and since these savings are now yielding virtually nothing, this provided an additional incentive to help one another across generations. As a result, we ended up with an even more polarized housing market, with buyers who received financial support and those who did not.

Energy issues

Due to rising prices for traditional energy sources, more and more single-family and multi-family homes are being built that no longer rely on traditional energy sources. Examples include solar panels, heat pumps, and district heating networks... However, the initial cost is higher, and this is reflected in higher sales prices.

More expensive building materials

Logistical delays have caused the price of building materials to skyrocket. We all know that those prices will drop somewhat once things return to normal, but they won’t go back to where they started. Much of that increase is being passed on to the customer.

Huge demand for move-in-ready homes

Today’s generation of young families places a high value on leisure time. We’ve noticed that there are fewer and fewer “do-it-yourselfers” who are willing to tackle a significant portion of the renovation themselves over the course of several years. As a result, a large portion of this target audience is no longer looking for homes that require extensive renovation. People are looking for a home they can move into almost immediately and where—depending on their budget—they can replace the kitchen or bathroom right away or a little later.

There was massive interest in this type of housing in and around the city outskirts. During our previews (one-time open house events), more than 50 prospective buyers usually showed up. Offers between 10% and 20% higher than the market-based asking price were not the exception but the norm. Precisely because people had been searching for a long time and didn’t want to miss out on another sought-after home, exceptionally high prices were recorded. A situation I have never experienced to such an extreme degree in the more than 25 years I have been a real estate agent.

Consequences of the Russian invasion of Ukraine

We must bear in mind that this conflict is not likely to be resolved anytime soon. Inflation, fueled primarily by the looming energy shortage and logistical challenges surrounding the supply of food and materials, is driving successive interest rate hikes. This could gradually put downward pressure on real estate prices. At the moment, this does not yet seem to be the case, especially in urban areas where demand still clearly outstrips supply. A major real estate crisis seems far off to me—though a slight correction could occur. Many projects have also been put “on hold” until materials become somewhat less expensive, making supply even scarcer. Demand for energy-efficient homes will continue to rise, and the extent to which existing homes can be converted smoothly and affordably will determine their market appeal. Furthermore, we are seeing that older villas on large plots are experiencing a golden age. In the price ranges starting at 750K, there is no real sense of a crisis, and these homes are being completely gutted and sustainably renovated. This is mainly due to the scarcity of villa plots of 12 acres or more on the outskirts of the city.

However, it is especially important that most people remain able to afford an average home. Owning a home is still the best guarantee of a financially secure retirement.

For this very reason, a mild cooling of the market is, in the medium term, more of a blessing than a curse for all stakeholders in the real estate sector.