When I’ve been at summer parties recently, some people have asked me when I’m due. I was beginning to get paranoid about my barbecue belly. But it turns out they were asking me the question de jour – when am I due to remortgage? When is your 2-year or 5-year fix rate deal due to end?
The latest data for Northern Ireland house prices and the latest figures for UK inflation were both released this morning. Both showed strong rates of growth but whilst the CPI rate of inflation certainly has further to go until its peak, can we say the same for house prices?
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.
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.
Two out of three categories of mortgage activity (first-time buyer, home mover and remortgage) posted faster rates of annual growth in Northern Ireland relative to the UK. However, these three segments of the mortgage market are moving at three different speeds.
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.
Northern Ireland Residential Property Price Index Comment
Northern Ireland’s housing market has been a source of continued positivity in recent years, with housebuilding, prices, transactions and mortgage activity all at multi-year highs. Though the property market remains in recovery mode, rather than recovered, following the biggest residential property downturn in UK history.
Residential property price growth has been slowing in both the UK and Republic of Ireland markets. The latest Residential Property Price Index for Northern Ireland points to a similar trend. Residential property prices posted their first quarterly fall in two years in Q1 2019 with a 1.0% decline. Annual house price growth eased from 5.1% in Q4 2018 to a more sustainable 3.5% in Q1 2019 – a rate that remains above consumer price inflation and broadly in line with average earnings growth. Lower rates of house price inflation (2-3% p.a.) are to be welcomed.
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.
The UK economy almost came to a halt in Q4 last year as mounting Brexit concerns took its toll on business investment. However, consumer spending maintains its gradual recovery, driven by higher real incomes.
