Northern Ireland house price fall steeper than the Republic’s?

Fascinating piece of analysis from Nama Wine Lake on Northern Ireland’s collapsing residential property market :

…in Northern Ireland, there’s an underappreciated phenomenon unfolding with prices there having declined by 54% in real terms. This morning the quarterly University of Ulster/Bank of Ireland house price series has been released and it shows that the average settled selling price of a home in Northern Ireland in Q1, 2012 was GBP 134,560 (€168,347) which represents a decline of 1.9% from the previous quarter and a decline of 46.3% from the peak of GBP 250,400 (€313,274) in 2007.

On this side of the Border, the publication last week of the Central Statistics Office monthly residential property price index showed that prices here have decline 49.9% from peak and given our peak price of €313, 998 according to the PTSB/ESRI index, that indicates national prices here today of €157,360. So the nominal decline in the Republic is greater than inNorthern Ireland, which might be expected.

But if you consider inflation in the Republic is a mere 1.9% since the peak whilst in the UK it is a staggering 16.7%, the real decline in the Republic is 50.8% and in Northern Ireland, it’s 54% which would appear to be world record, at least according to the Reinhart and Rogoff league table.

Given that Northern Ireland doesn’t have a major problem with vacant property unlike the Republic – its vacancy rate is 7% which is pretty much in line with international norms whilst ours is 14%; given that Northern Ireland has an unemployment rate of 6.8% which is one half of ours and given their banks are no worse and are probably in better condition than ours, isn’t it truly remarkable that their property crash is worse than ours?

  • DT123

    Surely NAMA has prevented the free market arriving at the “correct” price for property in the Republic?

  • Alias

    DT123, on the contrary, it has forced the price of property down further by establishing low benchmarks, e.g. it recently sold a parcel of land in Cork for 7 million that was purchased for 120 million.

    In theory, you’d expect it to keep prices high in order to deep the value of its assets high and also to keep the value of bank assets high but, in reality, the state is so desperate for cash that it is working against its own strategy.

  • jthree

    Going by the new NISRA index, which uses actual stamp duty data rather than estate agents returns, the fall is even more vertiginious.

    The UU survey has the average at £135,000; the NISRA, which includes all those nasty repo auctions, is bumping along at less than £99,000.

  • Drumlins Rock

    Firstly it means the south still has a good bit to go, however I would say NI is close to undervalued, use the simple rule of thumb, a house cost £50 a square foot to build, then infastructure site & all on top, some prices are already falling under that, why? Because the banks are finally clearing their books, selling at a loss, it has taken a while and depends on how many they have but I would imagine NI is close to finding a base, there might even be a slight jump in a yr or two.

  • jthree

    I’d tend to agree with DT123,

    Without Nama an even larger number of property firms would have been recognised as hopelessly insolvent. They would have been put into receivership and their properties offered for sale or their debts would have been sold for pennies-in-the-pound to vulture funds.

    Nama is operating as a life support ward for firms who are terminally bust. Most of what they have sold in Ireland is receivership jobs which have to got rid off. The real sales action for Nama has been in London and the south east where prices are OK. The bulk of the Irish stuff is being held in the hope that something will turn up.

  • Drumlins Rock

    jthree, is NAMA off loading its northern assets yet? Heard of some on the market, they don’t mind off loading the un developed land so much as it dosn’t directly affect house prices, but not so much of the indivual stuff. The glut of property in the RoI remains, and will exasperated by emigration, in NI we could end up with a shortage soon!

  • jthree

    They are – but it’s mainly the insolvency stuff. They sold what was one of Peter Dolan’s office blocks in Belfast earlier this month and also have a fair whack of Dungannon town centre on the block.

    They have also been selling some of what were Sam Thompson’s houses but on the whole Nama is a fairly insignificant player so far as residential stuff goes – by contrast they are a 500lb gorilla in commercial and development. However, the CAG report last week said their plan for 70% of their NI assets was to hold rather than sell until 2016.

  • Barnshee

    “Firstly it means the south still has a good bit to go, however I would say NI is close to undervalued, use the simple rule of thumb, a house cost £50 a square foot to build, then infastructure site & all on top,”

    Sadly you are behind the times –houses are being built for £35-£40 per sq foot. Not to mention the “ghost” estates lying half finished which have to be cleared off one way or another.
    http://www.armoyhomes.co.uk/

    Prices are still ahead of the 3/4 times average salary measure. A bit still to go before before the whole sorry dance starts again

  • DoppiaVu

    All that this analysis proves is that house prices in NI have not kept pace with inflation. That’s all. To isolate two economic indicators then extrapolate their relationship into something else is pure voodoo economics. If the price of a new iphone goes up would you go out and panic-buy spuds? Of course not.

    Which is not to say that house prices in NI are not overpriced and probably due for further correction.

  • Drumlins Rock

    It seems there is a large pool of possible buyers out there, http://www.bbc.co.uk/news/uk-northern-ireland-18256006

  • Neil

    The 555,000 economically inactive people here (staggered by that figure viewed here http://www.detini.gov.uk/deti-stats-index/deti-stats-index-2.htm) aren’t going to be looking for a house. That’s around a third of the population, or 4.4% more than UK average, which brings our figures closer into whack.

  • Zig70

    I’d agree with house prices still being too high from a 3x salary point of view and also from a rental v mortgage income. My folks always told me to leave space for a recession with high interest rates and the current NI pubic are heavily exposed to this.

  • BluesJazz

    Average salary in NI is between £18k (female) and £23k(male) :
    http://www.bbc.co.uk/news/uk-northern-ireland-15851657

    Which doesn’t factor in that the increased pay in the bloated public sector which has virtually stopped recruiting permanent staff.
    A best case scenario, for those lucky enough to be in secure full time employment, is a couple earning £40k between them. 2.5x this is £100k. That’s for the lucky few.
    First time buyers in NI shouldn’t be paying more than £70k. Single £50k-£60k. About another 30-40% drop to go.

  • And just imagine all those poor souls suckered and trapped in negative equity and paying the banks and/or building societies for something which is no longer there. It is worse than criminal, isn’t it, for the system to work it so to their advantage ……. and the perversity is compounded by the fact that it is the duped householder who saved the system from collapse thus allowing for them to be shafted for quite probably the rest of their miserable lives.

  • Alias

    Yup, amanfromMars, and all done by borrowing ‘money’ that never existed in the first place! Who owns Ireland now? Not the people but foreign bankers. The only good thing about this new form of colonisation, compared to the previous forms, is that no blood was spent to acheive it – assuming, of course, folks don’t bleed to death on hospital trollies and just die cleanly.

  • aquifer

    “the Republic – its vacancy rate is 7%”

    I thought that 16% was the figure?

    NAMA are there to prevent a crash, but if there is too much supply it is hard to stop it. In the North planning permissions are still being given to the banks ‘in possession’ of those sites, and if Northern Building costs are lower the house price may move down towards the price to build.

    House prices are ‘sticky’ as people do not or cannot sell below what they paid. Ironically in the North the prices may be less sticky, as historically people owned a good fraction of their house. i.e. They can take a loss without going bust, especially if they know their next house will be cheaper.

    Economic theory suggests prices will fall until demand equals supply? We could theoretically end up with a price less than what it costs to build new.

  • BluesJazz

    Economic theory suggests prices will fall until demand equals supply? We could theoretically end up with a price less than what it costs to build new.

    Aquifier, then building costs will have to adjust downwards. That means very low wages among architects, surveyors, builders and their tradesmen.

    They had their time in the sun, if they have to go below minimum wage-excellent, house prices will come down to 1990 levels. Which is where they should be. Builders should have as much sympathy as Rangers.

  • aquifer

    (unlike) “the Republic – its vacancy rate is 7%”

    Sorry Mick misread that your 14% for the Republic is much the same as my 16%.

    What can hold prices up is the return from private renting, attracting capital into the country. Even with longer periods between lettings the return can be bigger than from bank deposits.

    Ireland’s high rates of home ownership can be economically inefficient, restricting labour movement, though it is positive for political freedom if people with homes paid off can tell the landlord class to get lost.

  • Drumlins Rock

    bluejazz, labour costs have reduced significantly, and the architects etc fees have reduced significantly too, although they account for a tiny percentage of the costs on a multiple unit developments. However materials have risen considerably, more than doubling in some cases, and therby cancelling out any savings, most QS will tell you the end cost has generally stayed the same.

    Two other factors, new regulations & the government sticking its arm in with increased fees fuel costs etc. add up. And in reality we retain quite a low level of unemployment historically, much of the supply of tradesmen have got employed elsewhere so when demand increases so will the costs.

    I will stick to the £50 a sq ft as the break even point.

  • BluesJazz

    DR
    We currently have an oversupply of housing. Admittedly , in Belfast hideous apartment blocks and towers designed to imitate London or New York.
    As in Spain the economy/housing market is not going to recover in the near future. In the long term, given the huge subsidised public sector economy in NI and the growing deficit, added to upcoming unprecedented graduate debt the best case scenario is a long period of stagnation.
    The idea that rising house prices are a good thing is a curious middle aged, media pushed form of groupthink.
    They will go lower, and, in my opinion , stay low.