Sharp rise in house prices…

Shortly after I landed in the south of England, it struck me that a fairly modest sized detached house in East Dorset was going the same price as some of the biggest, poshest houses in Holywood. Now, with a 25% hike in prices in the last year, the gap is closing. The BBC reports that house prices in Northern Ireland are rising by £600 per week.

Bank of Ireland’s Head of Research in Northern Ireland Alan Bridle, said growth rates were exceptional and were expected to persist, at least for a while. He said: “Tales of limited supply, lengthy queues for new releases and gazumping have been gaining even greater currency in recent weeks. “To give some measure of the scale of house price rises, average prices now at nearly £163,000 have risen by almost £70,000 in just four years.”

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  • Dr Strangelove

    I take it that the rises are based on the actual price which the property is sold at as compared to the asking price ?

    Having dealt with estate agents in the North and in London, I can say that I have found those in London to be a lot more straightforward and, dare I say it, honest.

    The one thing which really pisses me off about the housing market in the North is the fact that the houses sell for a lot more than the asking price. The asking price is no indication of what the house will sell for. Why do estate agents not take this into account when valuing properties ?

  • soapy

    it encourages bidding, thus can earn more for estate agents

  • Brenda

    £163,000 for the average house, how much is that per week anyone know. What is the rate of interest now per £1,000 that you pay back. I remember in the 80’s the interest rate jumping to something like 20% and having real difficulty. But now its something like 5 or 6 % isn’t it.

    I mean high prices but low pay back rates it sort of evens out doesn’t it?

  • Young Fogey

    The technical term for a market which sees prices of a tangible asset rise by 48% in a year without any change in fundamentals is a ‘bubble’.

  • Yer Woman

    Thoroughly depressing. How is a first-time buyer, on the wages that are paid in Northern Ireland, suppossed to get on the property ladder these days? There will be a steep rise in the number of repossessions in the coming years surely?

    When a council house, in the armpit of Derry that is Galliagh, goes for £100,000+ you just know people must be fiddling the system somehow.

    Going on my wages, I can get a mortgage for £40,000. Apart from a caravan, what in under God will that get me?

  • slug

    An interesting effect of high house prices is it tends to result in people working harder and saving more, and perhaps women entering the labour market more to help with buying. All of which feeds the economy and makes prices go up more!

  • Miss Fitz

    I posted some time ago about reposessions being at an all time high, but they have since surpassed that and continued to rise

    At present about 15 houses a week are being re-possessed, mainly those in private ownership. Common reasons can be failure to pay a second mortgage,or default on rates.

    I believe we are raidly moving back to a rental type of scenario for people, with fewer home owners and more renters

  • peter

    ‘I believe we are raidly moving back to a rental type of scenario for people, with fewer home owners and more renters’

    Miss Fitz,

    The scenario you outline is not applicable in the North.The Housing Executive has also started to evict a lot more tenants with rent arrears even though social housing rental levels are much lower than the exorbitant rents in the private sector. These evictions now happens even in areas perceived to be loyalist or republican areas where in times gone by, local hardliners would have prevented evictions happening- One less palatable element of the Peace Dividend perhaps? Maybe not for those who put finance before people
    Sadly the dearth of new build social housing in the North means that the rented sector cannot provide a safe haven for those families on low incomes who are struggling to pay mortgages.

  • Miss Fitz

    Peter
    I was at a conference in Cookstown a couple of months ago, and the evidence presented contradicts what you are saying about NIHE evictions. They run about 80 per year, and remain stable. There is no increase in evictions among the HE rental sector.

    There is also a private rental sector, and I think you will find I am going to be proven right in my analysis of this. I am familiar with about a dozen people in the past few months who have had their houses sold prior to repossession, and now rent them back from the new owners. People who are repo’d can move into private rental as well.

    I think we are moving quite rapidly to that kind of society, where owning a house is going to become a more and more elusive thing, and impossible for younger people.

    Hence the introduction of trans-generational mortgages recently

  • aquifer

    There are huge tranches of empty land with residential planning permission. The developers should be taxed on the residential values of this.

    The planners are also running scared from the scale of development required. In Holland they just build new towns of affordable housing next train stations and thats it.

  • Crataegus

    Aquifer

    There are huge tranches of empty land with residential planning permission. The developers should be taxed on the residential values of this.

    I agree with the sentiment of what you say, but where are these open prairies ready for development? There is not as much as people generally think. The land that I think offers best opportunity with current restrictions are the thousands of small sites that most don’t particularly notice and when I do my homework I find that much of this land is owned by government bodies rather than the private sector. One mans opportunity for a few apartments is a nuisance site for a government body. Then there is the land occupied by surface carparking, and private rather than communal car parks. Just look at the land wasted at say Sprucefield. Third change; we need to increase density by setting a planned set of design criteria for redeveloping our inner city main roads. Get the heights up to 7-8 storeys; allow various smaller developers to participate within an overall context and have development channelled into some constructive purpose and out of peoples back gardens.

    Miss Fitz

    There just are not enough abodes rented or otherwise. You can no longer buy a property and rent it out and expect the rent to pay for your investment. So you are relying on the increase in property values to make a profit. This is unstable; very unstable!!!

    Some colleagues own considerable amounts of residential and from what I can gather a very high percentage is now being let to our enterprising Central European workforce. Although rather anecdotal I am reasonable sure we have fairly high levels of immigration.

    We just are not building enough dwellings and have not been doing so for quite a while. The building industry has been raising this matter for years and the response they have got is they would say that. Perhaps next time listen!

    Unfortunately there is no quick way out of this as all building takes time and there is a limit to how much can be built in a year (than God for Polish joiners) The biggest problem I think is a moribund and totally inefficient Planning Service. I doubt if they have any idea what to do and certainly they don’t have the means to enact any real change. We can’t sit and wait for the Titanic quarter redevelopment we need lots of small schemes and give local small builders some useful outlet.

  • Miss Fitz

    Crat
    Economics is SO not my forte, so I take on board everything you are saying. Surely housebuilding has been one of the main factors in the recent continuance of the ROI economic success? And I assume that there would have to be various concommitant factors for it all to work, although I think the planning point is well made.

    The point I was making is that I think we are turning the triangle of home ownership upside down with the surge in repossessions and subsequent rentals/ Without exaggerating, everyone I know has at least 2 if n ot 4 houses. The one here in NI, one abroad, then the flat here, and now a house in Belfast. OK, well nearly everyone I know………

    I just feel that in 5 years time we are going to look at this and go OMG, wha happened!

  • fairy liquid

    “The technical term for a market which sees prices of a tangible asset rise by 48% in a year without any change in fundamentals is a ‘bubble’.”

    Anyone think the ‘bubble’ might burst?

  • Crataegus

    Miss Fitz

    Surely house building has been one of the main factors in the recent continuance of the ROI economic success?

    The building sector has been strong but historically it does tend to go in cycles and these have little to do with real need and more to do with money supply.

    I am one of those people that think the thousands of planning approvals for bungalows all over Ireland had a major influence on the performance of the Irish economy. It converted corners of fields into very substantial assets and increased the National equity as it where.

    OMG, wha happened!

    Yep can see that happening.

    There are perhaps several reason for multiple home ownership etc. Many see property as a safe place to invest. Houses always go up! Swings in the stock market, low interest rates for savings and really poor pension deals have helped create the impression that property looks easy, is attractive and is safe. Add to this the rather silly real life how to be a property developer programmes on TV and a lot of people are having a go. Some will eventually get their fingers burnt as property isn’t safe and more than most markets you really do need to predict the likely future. You can shed shares fast; try getting rid of 12 apartments in a recession, bankruptcy!

    There are two other important factors; no substantial outlet in this country for investment in manufacturing and the attitude of Banks. It is very easy to go into a bank and borrow against property, but when you try it for virtually any other business, unless it is a proven franchise, pain and grief.

    On the down side there are lots of people who cannot afford to buy a house and for whom rents are crippling. To my mind this really is appalling and the amount that first time house buyers are expected to borrow is obscene. The only way to address the problem is build until we satisfy demand.

    I would like to see a property market that rose by less than inflation for a considerable period and I would be quite happy to see many of the property speculators (as distinct from developers) get their fingers burnt and would welcome measures to discourage speculation. Too many parasites.

    fairy liquid

    A slow down is inevitable how severe depends on interest rates. The sooner it happens the better.

  • Tochais Siorai

    Crataegus – It may well have fuelled growth but the economy has grown too fast anyway & we could have done without this extra input. The infrastructure hasn’t been able to keep pace with the growth(wasn’t up to scratch in many cases to begin with).

    My own experience is that the demand in my area is not from locals but outsiders who make little contribution to the local economy and use the new houses as holiday homes (often seldom used) and/or as investments. Prices for many locals are now out of reach because of speculators whilst at the same time hundreds of houses are empty or virtually empty.

    ‘National Equity’ may have gone up but quality of life has gone down in many cases.

  • Crataegus

    Tochais Siorai

    I would like to see some tax measures introduced to make speculation in land and property less profitable. There is a big difference between speculation and development. The former are parasites the second do contribute to society.

    With regards holiday homes I am not sure what would be the most effective way of dealing with this matter. On one hand many homes are let, or just occupied, during the summer and bring tourists in and without them tourist related activity would drop, but I agree with you there is something fundamentally wrong that someone should have two houses and another unable to afford anywhere to live. I am not sure how this can effectively be addressed. I am guilty of this myself as I have an abode in London but I definitely need it (more than the Belfast one) for reasons of business and to hold meetings, have computers, files and all the usual. But I am there throughout the year and more than most people occupy a holiday home.

    If you start to tax the sale of homes, not the principle residence, then people claim they are the wife’s or son’s home. If anyone has seen a clever proposal to discourage holiday homes or ensure you are building for 12 month occupancy I would be very interested. Perhaps simply a condition of the Planning Approvals?

  • Young Fogey

    Anyone think the ‘bubble’ might burst?

    All bubbles burst. That was my point.

    Have wages gone up my 48% in Antrim and Ballymena over the past year? Have dozens of Randalstown housewives suddenly won the lottery?

    Sure, there’s a supply and demand thing operating as well, with demographic changes increasing the number of households and significant immigration, and Greater Belfast badly needs the Dunadry and Camperdown garden villages to go ahead in the near future. But that doesn’t explain a 48% annual increase in some areas.

    Remember the old line about the great stockmarket crash of 1929? When bell boys started giving you stock tips it was time to get out of the market? Well, when every low-budget programme on Channel 5 is about redeveloping apartment blocks in Budapest, it’s time to think twice about investing in bricks and mortar.

    Multi-generational mortgages have only previously happened in Japan – that was on the back of a housing bubble that eventually saw prices fall 60% below their peak (more in Tokyo). And remember, Japan has an acute shortage of land that isn’t unsuitable for development in some way, like being on top of a volcano. We don’t. If they were the sign of the bubble-to-end-all-bubbles climaxing out there, what do you think they signify here?

    Never forget there’s a sucker born every minute. Some of those suckers are currently buying plywood boxes in Warrenpoint for £150k and commuting to Belfast every day. Harsh, but true.

  • Exiled in Scotland

    Prices paid for properties in NI are huge when compared with rents.

    When I lived in Belfast I found that you could rent a 4 bed house for ~£700pcm. Now to buy one of these houses now would cost you £250k (asking price of 31 Elaine St. in Stranmillis)
    given that rent at £800 pcm would mean that the yield if you were to let it out would be less than 4% – houses look extremely overpriced.

    If you think that it is only prime city locations that are overpriced look at the costs of houses mentioned in Gallaigh. This is an area which is renowned for its poverty, social problems and general low standard of living. 100k+ for a 3 bed house?

    Anyone who is considering buying a property should step back and think about what they are doing. If your house is going to be the biggest financial purchase of your life you should certainly let your head rule your heart.

    People’s fingers will be burnt by property – and in the case of house prices and rollercoasters – past performance is not a guide to the future.

    Given that NI’s economy is essentially weak and low-paid. How can these prices be justified.

    Visit http://www.housepricecrash.co.uk for more opinions on house prices.

  • Flags

    If house prices are going up – surely now is the best time to buy – otherwise i’ll never be able to afford a place of my own somewhere.

    renting is throwing your money away.

  • slug

    YF

    “But that doesn’t explain a 48% annual increase in some areas.”

    What can happen in the housing market is for values to be out of line with fundamentals for quite long periods, then prices can change very suddenly. It could be that the old price was out of line with fundamentals not that the new price is. Prices in Ballymena are higher than last year but still cheaper than many places in the UK.

  • membership

    We should all start our own churches, then a few years later, we can get them to buy us a nice big house in Crawfordsburn a la Paisley!

  • Young Fogey

    It could be that the old price was out of line with fundamentals not that the new price is. Prices in Ballymena are higher than last year but still cheaper than many places in the UK.

    It could be… but remember people in Northern Ireland earn lower wages and (just about) have larger families than those elsewhere in the UK. Also note that the price gap with the rest of the UK is closing. Further note that house prices in Great Britain are at their highest level in recorded history relative to incomes. For those buying to let, who are essentially driving the continuing house price boom, yields are falling and they are increasingly dependent on capital gains to make their investment worthwhile. This is not a sensible strategy.

    Let me put it another way – do you think anything fundamental has changed about human psychology in the past 10-20 years which would change basic economic behaviour? If not, you have to at least entertain the prospect of this being a bubble.

    As long as there has been money, there have been economic cycles. And as long as there have been economic cycles, they have been governed by fear and greed. And the minute greed is outstripping fear something shocking – most visible in the Republic where an army of robopaddies is snapping up every new development from Lanzarote to the Caucasus at prices which are ludicrous by local standards.

    People thinking there can be a soft landing are deluding themselves. The ratio of prices to incomes is at record levels, and to add to the happy mix, consumer debt is at hitherto unimaginable levels. The only thing sustaining the market at the minute is ever more debt. All it takes is a tiny shock – a modest rise in unemployment, another point or two on base rates – and the whole thing will come tumbling down. I wouldn’t want to be stuck with an overpriced plywood box in Warrenpoint or rabbit hutch ‘luxury apartment’ on Sandy Row when it does.

    But, hey, maybe I’m wrong, maybe in the new world the basic rules of economics have been rewritten and we now live in a world where bad things never happen to people with good intentions. Maybe.

  • Crataegus

    Demand is high because of a shortage, but it is affordability of large mortgages that is keeping the price up. The key to that continuing is likely future interest rates and the confidence of Lenders.

    The buy to let market in much of the UK and Ireland just doesn’t make sense (to me), land is attracting too high a price, and earnings are not increasing at the same rate as property, and bankruptcies are on the increase. Some of the factors are moving against sustained price increases.

    It really depends where interest rates top out if we head towards 6% expect a blood bath and the collapse of the buy to let sector. The margins some are discussing and the propensity for interest only loans is frightening. A 1% increase in interest rates at present is more than a 20% hike in interest and .05 % is greater than a 10% increase so with low margins just what can that sector withstand? Also if you have a mortgage that is right up at your limit better start looking for a night job.

    In my book a downturn is probable but if it does happen it is unlikely to knock more than say 20% off prices and most people won’t be impinged as a house is for living in. The real problem is the potential attitude of Banks and their wider lending policy.

  • Young Fogey

    and bankruptcies are on the increase.

    And unemployment (the jobless rate has increased by ~1% in the UK over the past year). And interest rates. And wages in many manual jobs are falling. And, the crucial point, consumer debt is at an absolutely unprecedent, stupendous, unimaginable level.

    You are much too sanguine, Craetagus.

  • Crataegus

    Young Fogey

    I’m just getting mellow in my old age!

    What some ‘investors’ think is if interest rates go up they just sell off a few properties and reduce borrowing. Some haven’t had the experience of is trying to sell property in a bear market. Apartments and houses can just sit and debt keeps going up by the day. It is the rubbish developments, shoe box apartments etc that really take a pounding if things go bad and there are lots of crap developments in the pipe line.

    That’s the big down side with property investment hard to get out fast once committed. Anyone entering the market now would need to be well covered and either balls of steel or brains of porridge.

  • Young Fogey

    I think you’re talking about the difference between an investor and a speculator, here, Craetagus.

    And why rush? I’m moving from a flat where I reckon I’ve been taking my landlord for £300 a month (not including maintenance) to a nice big house with a big garden where I’m going to be taking my landlady for about £500 a month. Both bought to let in the past 3-5 years in London so they do not have much of a capital gains cushion.

    Not only that, my rent is low enough (relative to income anyway) I’m saving a nice big deposit for when the market comes down. And if it doesn’t come down that much? Well, I’ve still got the big deposit.

    I’ve lived through two stockmarket crashes and a property slump and every time people were saying that the rules of the game had fundamentally changed, etc., etc. None of this is new.

    The people I really feel sorry for are the first time buyers taking out 100% mortgages at scary multiples with no real savings. They will be the real losers at the end of this folly. But then, that’s not exactly new either.

  • Crataegus

    Young Fogey

    Like yourself I feel for the first time house buyer and frankly wouldn’t mind seeing many speculators loose their shirt.

    I have always made more money in recession than in boom. On the way down people are getting out and the potential for upward correction is greater. Cash is king and bargains easier to find. The trick is guessing the bottom and not going for maximum gain but covering options. When the herd instinct starts its time to take stock.

    You know the trick that a dodgy sales person uses, limited number available and you only have today to buy at this special price. People fall for it, but in a way that’s how a property bubble works.

    Anyway like yourself I think sit back and wait and if keen to invest go East to the rising economies of Asia.