Bank of Ireland announced today they will be selling 1,500 houses within the next few months. Included in this figure are an undisclosed number of repossessed homes (stated as approximately 1 in 6), but presumably the majority will have been returned to the bank due to failed debts.
A significant increase to housing market supply
Well in the first three months of 2014, only 5,400 homes were sold. So 1,500 is a considerable proportion, almost 1 month’s supply across the country. Now it depends on where these properties are located but it is likely if sold in quick succession, this will have an effect on supply coming to the market.
The current shortage of demand is down to homeowners not putting their houses on the market to sell, but that is mostly due to negative-equity or large paper-losses from their original purchase price. However there is a significant proportion of homes held by the banks or banks poised to repossess if they choose to do so.
In all likeliness, these are probably some of the bank’s worst loans and debtors, the ones they are willing to repossess first. Many may also be Buy-to-Let loans, these typically being easier and more palatable to repossess and sell.
How will it affect house prices?
This is a fair flood of supply if it is all released at once. The market is already slowing in once-hot Dublin due to the summer in part but also because recent price rises have made buyers nervous and homeowners greedy. More sales have come to the market naturally but not enough to curb prices on their own.
A large release of bank sales will be enough to move the dial. Prospective purchasers will hold off bidding until the new sales arrive to market – many will expect them to be discounted but that remains to be seen. Then in due course the increase in supply will give buyers many more options and diffuse the competition for each sale – thereby reducing bidding fervour and dampening price rises.
Good news for the long term
In the long term we will be pleased with a steadier price rise and more stable market. The Bank are also talking about the capital raised being used in funding new developments – €250 million has already been earmarked. David Duffy had mentioned his bank was in discussions to fund schemes that would create 5,000 new homes.
Of course this will further increase supply and temper these price rises. But it is good to see the banks are starting to think ahead and not plan their recovery around a rising tide floating all their bad loan books.
More on this in the Independent.