Thousands to escape negative equity this year as prices recover
TENS of thousands of home-owners will escape from negative equity this year, as property prices recover and the country emerges from recession. A housing specialist with the State's economic think-tank, the Economic and Social Research Institute (ESRI), has predicted that 2014 will be the first year that will see a drop in the number of people whose mortgages are higher than the value of their homes.
David Duffy said a 10 per cent improvement in prices would mean "a sizeable number of people coming out of negative equity". And he suggested the improvement in the negative equity problem in the capital could spread nationwide.
But he also warned extreme caution was necessary when predicting future trends in Ireland's still volatile property market.
"Increasing prices will help bring more people out of negative equity. There will be some variation in different parts of the country – but we're seeing prices stabilise outside of Dublin,'' Mr Duffy told the Sunday Independent.
He said the improvement would happen first in the Dublin area, then other urban locations, and finally rural regions. He added that the upward trend in Dublin prices, which gathered momentum last year, was likely to continue in 2014.
Mr Duffy's positive assessment comes after a week of encouraging economic news.
These include a significant upswing in employment figures, which experts say will also boost the property market. Latest property figures also show the improvement in prices is beginning to spread outside Dublin, with housing specialists reporting that some rural towns and villages are finally seeing some growth.
While a two-tier property market still exists between Dublin and the rest of the country, the latest retail property price index suggests the huge growth in prices in the capital is slowly becoming a nationwide trend.
Alan McQuaid, of Merrion Stockbrokers, predicts prices nationally will go up by 6 per cent this year and by 10 per cent in Dublin. He also suggested the improvement in the market generally had been quicker and more sustained than had been expected.
The ESRI traditionally adopts a more cautious approach to negative equity than other financial institutions. It estimated that at the end of 2009 the number of people affected was 126,000 – but within a year this had risen to 160,000.
By the end of 2011 the figure was 208,000 and by the end of 2012, this had escalated further to 214,000.
Other bodies have used different methods in calculating the total number of Irish homeowners having properties worth less than what they paid for them. A Central Bank report in August suggested the figure could be as high as 400,000. That study found that up to half of all residential and buy-to-let mortgages were in negative equity.
House prices had plummeted by more than half since the market peaked in 2007.
This meant that about 40 per cent of the total of 920,000 mortgaged properties had suffered a drop in value.
Between 1995 and 2007 prices rose by an average of 9 per cent per annum, and at the peak between 2004 and 2006 a total of 340,000 new mortgages were approved.
This is the key segment of the market which hopes the current upturn in prices will ease their debt burden.
Market sources also suggest this grouping contains many house- and apartment-owners anxious to "trade up'' if they could get a reasonable price for their existing property. If they were free to enter the market it would in turn provide a major boost for sales nationally, according to analysts. This would then boost underlying market confidence.
Residential property prices grew by 6.3 per cent in the 12 months to January this year, down from a December figure of 6.4 per cent.
Nationally prices fell just under one per cent during the month of January, which was the first monthly drop since March – and contrasted with a slight increase in December. Overall, Dublin house prices were 13 per cent higher when compared with the same time a year ago.
Apartment prices in the city were almost 17 per cent higher when compared with the same period in 2013.
The price of residential properties in the rest of the country showed no monthly variation in January.