housing

Residential property prices hit a 12-year high

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The latest NI housing statistics, transactions, starts and completions for Q1 2021 were released this morning by NISRA.

Property prices, transactions, starts and completions all rose year-on-year rose in Q1 2021. Estate agents and house builders have experienced a ‘V-shaped’ recovery but how long will the good times last?  

Reality check – Inflation has been the buzzword in recent weeks with cost increases and price rises becoming more apparent amongst businesses and households. UK CPI inflation jumped from 0.7% y/y in March to 1.5% y/y in April. That represents the largest monthly increase since 2009. Residential property prices are rising at an even faster pace and have reached their highest level in 12 years. Northern Ireland’s Residential Property Price Index increased by 1.1% q/q in Q1 2021 with prices 6.0% higher relative to the corresponding period a year ago. That marks the largest year-on-year increase since Q3 2016 and is more than double the rise in private sector rents (+2.6% y/y). Northern Ireland’s residential property inflation is running at twice that of the Republic of Ireland (+3.0% y/y) but is below that of the UK (+9.1% y/y). The latter represents the fastest rate of residential property price inflation in the UK in 13.5 years. Local residential property prices have now increased by 53% relative to their trough eight years ago.  But despite this growth, the standardised residential property price (£149,178) is still one-third below Q3 2007’s freak of £224,670. The latter doesn’t take account of inflation. Adjusting for inflation, Q3 2007’s peak was £301,000 in today’s money – double the price of houses some 13.5 years later.

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Bumper month for property market in March

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Boom times are back? March has been a bumper month for property transactions with local estate agents experiencing sales volumes not seen since 2007/08. Unlike the last property boom, the surge in activity is largely catch-up from the lockdown-induced record slump in Q2 last year (-67% y/y). The pent-up demand has been boosted by fresh demand from outside of Northern Ireland stemming from the post-COVID-19 opportunities of working from home. A temporary reduction in the stamp duty land tax has also provided an added incentive for the more expensive and typically larger properties.

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NI house prices rising but supply softening

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This time is different. Northern Ireland’s housing market was front and centre during the last recession during the late noughties. But this time is different. While output has posted its steepest fall in a century, the housing market has been one aspect of the economy that has fared better than most. Residential property prices have defied gravity and have just completed their seventh consecutive year of annual price growth. Meanwhile housebuilders and estate agents have witnessed a ‘V-shaped’ recovery from the record rates of decline in house completions and transactions.

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Two Up Two Down: Latest housing market statistics

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Today’s batch of housing market figures for the third quarter could be summed up as “two up two down”. Two indicators (residential property prices and house completions) posted year-on-year growth.  Meanwhile housing starts and the number of residential property transactions are on the wane. 

Generation rent. House prices are always one of the most closely watched economic indicators by the general public or at least homeowners and potential first-time buyers.   Although the rise of the private rented sector over the last decade means for an increasing share of society, rental prices are more relevant than house prices. Homeownership is not on the radar for as many under 40s as it once was.

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How will moving out of EU impact the housing market?

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There has been a steady stream of negative news of late about consumer spending and consumer confidence. The latest car sales figures for Northern Ireland reveal that last month was the quietest for car showrooms in eight years. Meanwhile retail sales fell at their fastest pace in almost four years in February, according to the Ulster Bank PMI. And talk of food shortages and potential tariff-induced price rises if a no-Deal Brexit comes to pass will have done little to boost consumer sentiment. However, despite all of this, when we look at figures in relation to housing – the biggest discretionary consumer spending item of all – they appear to be at odds with everything else that is going on.

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The Big Economic Quiz of the Year

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What were the economic highlights and lowlights of 2018? What will be good, bad and ugly in 2019? Who will be next year’s economic villain? What word would you use to sum up what you expect to see in the next 12 months? These and many other questions about the Northern Ireland and global economies are asked and discussed in our new podcast, which we’ve boldly called the Big Economic Quiz of the Year.

And fittingly, we have some big fish from the local economics community contributing. Angela McGowan, Director of the CBI in Northern Ireland and Richard Johnston, Deputy Director of the Ulster University Economic Policy Centre join our own Richard Ramsey and business journalist Jamie Delargy to review, predict and ruminate.

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Bank of Mum & Dad funding housing market recovery

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The latest set of mortgage statistics from UK Finance reveal further signs of buoyancy in the Northern Ireland housing market.

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The first-time buyer market continues to post double-digit growth year-on-year. 2,700 new home-owners took out a mortgage in Q2 2018, that’s up 12.5% y/y and the highest figure since Q4 2005. Meanwhile the size of the loan advanced to new home-purchasers hit £100,000 for the first time. 

Significant deposits remain a feature of the mortgage market for first-time buyers. The median deposit for both NI & UK first-time buyers currently stands at £17,000.  That equates to three-quarters of the median annual salary of a full-time Northern Ireland employee aged 25-34 years of age. Few thirty year olds (the average age of a first-time buyer) can avail of this sort of cash without assistance from the so-called Bank of Mum & Dad / Bank of Grandmum & Grandad.

Unlike the first-time buyer market, growth in the home mover market remains lacklustre. The legacy of negative equity and little or no equity continue to act as a drag on this area of the market.

Only 1,600 loans were advanced for people moving house in Northern Ireland during Q2 2018. This represented a rise of 7% y/y but compares with a quarterly average of 4,000 for the decade 1997-2006.

Remortgage activity, which accounts for one-third of mortgage activity, has also been on the rise. The number of loans remained flat at an eight-and-a-half year high of 2,300 in Q2 2018.  This represented a rise of 10% y/y but is still only one-third of the volume of remortgage activity that occurred between 2005-2008.

Overall, activity in Northern Ireland’s mortgage market continues to recover from the biggest property downturn in UK history. The first-time buyer market is driving this growth which in turn is being supported by individuals with access to sizeable deposits.

As far as deposits are concerned, the would-be first-time buyer market is being split into haves and have nots. For an increasing number of aspirational home-owners, saving for a deposit is particularly challenging within the context of ongoing house price growth, strong rent inflation, modest wage growth and rising utility bills.

Pricing Status? It’s complicated

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To listen to consumers and the media, you would think that price is all that matters. Whether it’s house prices, holidays, the latest bargains, mobile phone contracts or even the price of a pint of beer, all people seem to focus on is the cost. And in many cases, price is indeed key. Think back to when chocolate bar companies shrunk their products rather than raise their prices, or how big a deal some retailers make out of their Boxing Day Sales and Black Friday deals. However, price isn’t always all that matters for consumers. Price, and what we’re prepared to pay, it turns out, is a complex thing.

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Time to promote a ‘property-renting democracy’

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 There’s no shortage of information on the housing market, telling us how prices and sales activity for instance are changing on an annual, quarterly or even monthly basis. These surveys are important and give us a flavour of how the market, which is a key part of the economy, is performing. But there is a danger that we get too fixated on these numbers and miss a more important trend.

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