Homeowners pay 24% of income on their mortgage
Price adjustments needed if buyers are to be tempted into the housing market
Many housebuilders are facing frightening losses as market prices have fallen to the point where past costs cannot be covered at realistic prices. Where does blame fall: greedy or careful developers trying to anticipate the market place? Planners because they have over restricted the issue of planning approvals?
Lenders of funds for house purchases who have lent excessive amounts that buyers cannot afford to repay? They all must take some blame.
The danger now is that steps to revive the market may lift the market but before lessons have been learned by the planners, developers and lenders. In a revived market, the bubble could re-inflate again.
Average house prices in Northern Ireland have tended to be about 80%-85% of the UK average. During the 1990s the house price gap narrowed and in this decade, it was reversed.
House prices after 2004 rose predictably but unsustainably. Up to mid 2007 price increases were out of line with other UK regions.
Some estate agents, lenders and mortgage providers, and media pundits endorsed a scramble based on ‘buy now before prices are even higher’. Responsible behaviour was often missing. In the autumn of 2007, the market froze. Today, the main question is how far the market has reversed and how much further it has to go to stabilise.
The real housing needs of people in Northern Ireland have not altered significantly. The basic need for over 10,000 new houses each year remains. Every month there are less than 50% of normal house sales. The local surveys tell a similar story of price increases in 2006 and to the middle of 2007. By mid-2007, the annual rate of increase was:
l University of Ulster (Bank of Ireland) 48%
l Nationwide Building Society 54%
This compared with an overall UK increase, as measured by Nationwide, of 10%. At that point, the Northern Ireland average price was 24% above the UK average, compared with being 12% lower a year earlier.
From mid 2007 to mid 2008, the statistics diverge. The fall in average house prices differs. The contrast is:
l University of Ulster 6%
l Halifax Building Society (in NI) 21%
l Nationwide (in NI) 19%
These differences are surprising. Why does the survey for the University of Ulster produce a much smaller fall in average prices?
A probable explanation (for a large part of the difference) is that the university survey collects information on housing deals as recorded by estate agents.
This means that it includes deals where no new mortgage is needed. The building societies are dealing with new mortgages or mortgages that are rolled over.
These factors point to possible structural influences. The University of Ulster survey shows that not all house types have had a fall in average prices.
Prices for flats and apartments in mid 2008 are higher than ever. Semi-detached houses are showing the largest price falls.
The number of housing transactions is down by about 50%. The possibility is that a shortage of mortgage funds for borrowers is hitting prices for the less affluent part of the market.
The information from estate agents may now be distorted since it is showing a small price fall but that may currently be influenced by higher priced properties. Whatever the causation, the housing market is more complex than ever.
One salutary figure emerges: Halifax Building Society has calculated that monthly mortgage repayments, which were an average of 15% of household income in 2002, have now risen to 24%. That increase is a worrying deterrent to potential buyers.
The removal of stamp duty on transactions below £175,000 and the injection of modest shared equity schemes is welcome. However, for many potential buyers more fundamental price adjustments are still needed.