45,000 out of negative equity…but only in Dublin
The latest ESRI report has announced that the number of homes in negative equity has fallen by 45,000 during 2013.
However, of those 45,000 approximately 35,000 were in Dublin, so over three-quarters of the improvement nationally were due to the rapid increase in prices in the capital.
Good news…but the problems persist for homeowners
On the face of it this is of course great news for homeowners. The relief when a house price rises out of negative equity if palpable – you can almost see the cloud lift from over a family’s head when they hear there house is worth more than their mortgage.
However, it is not always the complete solution to all a homeowner’s problems:
- Even if they can sell there home at a profit or break even, they may not have enough money to pay a deposit on a new home to allow them to move. Many families continue to remain stuck in their too-small apartments and homes with expanding families. Yes, banks are a little more willing to negotiate moving a mortgage when you are back above that magic line in the sand, but you may not be in a position to upsize your home for the same value.
- Secondly, further rises will raise house prices across the board. But not consistently. Unfortunately the demand for 2 bed apartments is very different from the 3 bed semi-detached. As one might rise 10-20%, the other has jumped 30-40%. Homeowners may be out of negative equity but no close to being able to afford to change their situation.
Do we want more price rises?
Obviously most homeowners would lead you to believe that yes, keep them going up! But the reality of trying to sell and then buy your next home in a rapidly rising market is often heart-breaking.
Talking on the Pat Kenny Show this morning (listen here), the sharp Karl Deeter from Irish Mortgage Brokers had this to say about the issue:
Rising prices will take people out of negative equity and it will kind of solve some problems for them… but I think it has to be tempered because rising prices, rapid property price rises are quite unhealthy.
He goes on to make a clever comparison with oil prices. We wouldn’t be dancing on the ceiling if oil prices continued to shoot up. As ‘Consumers’ of housing (as owners and renters) we don’t want prices to keep increasing. Of course as owners we do but it doesn’t mean it makes our situation better. In fact, rising rents and house prices can have the opposite effect, increasing the cost of living.
The Apartment Generation vs Mortgage Free Downsizers
The real crunch point is in the 3 to 4 bed semi in nice areas. The ‘Apartment Generation’ who have been stuck in their first home, a 2 to 3 bed apartment or small house, are feeling hemmed in with the kids growing up and need more space. They can now cover their mortgage but it’s a struggle to afford the 3 or 4 bed house in the same area.
Not helping the situation is a very different demographic active at the moment. Downsizers coming from the 5 or 4 bed house and looking to find a comfortable 3 bed home now the kids have (finally) left home. Few downsizers are interested in 2 bed apartments or smaller homes, they have a lifestyle they are accustomed to and the provision of housing stock the fits the bill is limited. A two bedrooms property usually means a compromise on living space, whereas most would just like to keep the same living rooms and lose a now unnecessary bedroom or two.
So downsizers and upgraders are targeting the very same properties. One has 100% cash and plenty to spare from a larger sale, while the other is already at 100% mortgage and scraping together a deposit and costs to make the move work.
Who do you think wins out?