Showing posts with label First Time Buyer. Show all posts
Showing posts with label First Time Buyer. Show all posts

Northern Ireland, a problem child


Graph 1 - Source: ONS (2011) & Nationwide (2013)
Up to 2009, housing prices were still declining within Northern Ireland according to Graph 1, while gross disposable household income was gradually beginning to recover. Attanasio et al. (2009) discovered that consumption should correlate with movement in house prices; however it was found that during a boom and briefly following a bust, they will deviate away from each other.

Up to 2009, housing prices were still declining within Northern Ireland according to Graph 1, while gross disposable household income was gradually beginning to recover. Attanasio et al. (2009) discovered that consumption should correlate with movement in house prices; however it was found that during a boom and briefly following a bust, they will deviate away from each other.
Graph 2 - Source: Nationwide (2013)
Graph 2 presents the status of the UK house market on a regional basis. Northern Ireland has quite a prominent difference in comparison to the UK average and other regions which have followed a similar line to the UK. Norwood (2008) cites that house prices leading up to 2008 had grown around 160% over five years, three times the rest of the UK. Combining the crash in house prices and low economic growth across the UK, Northern Ireland felt a multiplier effect with construction of affordable social housing almost halted and soaring unemployment. An economist from the Bank of Ireland, cited by Norwood (2008) said that the market was “stricken with relative inactivity uncertainty and nervousness over valuations"

However there was a silver lining out of this. First time buyers rejoiced as the housing bubble burst, with property values dropping and interest rates at record level lows housing affordability was once again in the grasps of the first time buyer.

In their study, McGreal, Brown & Adair (2010) targeted the Belfast Metropolitan area to decipher the factors that caused such a massive collapse of the housing market. They identified that the key driving force for the expansion of the bubble or at least the foundations for it, was the growth of income, very low unemployment, low interest rates and strong macro-economic influences from the UK accompanied by cross border investment relations with the Republic of Ireland.

McGreal, Brown & Adair (2010) results demonstrate the deviation from the asking price of houses and the actual sale value which I have attached, as Appendix 1 & 2. From these results they were able to pinpoint when the bubble was vigorously expanding as the both the asking and the sale value prices shared similar tracking during normal market conditions while during a bubble values where higher and more varied.

Attanasio, O.P., Blow, L., Hamilton, R. And Leicester, A., 2009. Booms and Busts: Consumption, House Prices and Expectations. Economics, 76(301), pp. 20-50.

McGreal, S., Brown, L., & Adair, A. (2010). List price and sale price variation across the housing market cycle. International Journal of Housing Markets and Analysis, 3(2), 89-99. doi: http://dx.doi.org/10.1108/17538271011049731

Nationwide, 2013. Housing Price Index (HPI). 1. England: Nationwide.

Norwood, G 2008, 'PRICES HEAD DOWNHILL', Estates Gazette, 820, pp. 99-101, Business Source Premier, EBSCOhost, viewed 28 February 2013.

Office of National Statistics, 2011. Regional Gross Disposable Household Income (GDHI) 1995-2009. 3. England: Office of National Statistics.

Appendix 1 - List Price vs Sale Price 

Appendix 2 - Standard deviation between list price and sale price




Consumption & Housing Prices

McGreal, Brown & Adair (2010) state that "housing is a multi-dimensional commodity embracing both consumption and investment; hence, the price asked for a property (list price) or a price achieved (sale price) reflect not only the attributes of the property." They indicate the tension within the house market due to competing interests, which in-turn affects the prices. As an investment, housing markets are susceptible to cycle, featuring bubbles of booms and busts.

Source: ONS (2009) & Nationwide (2013)

The UK bubble began to form around 1998, but saw a slight decline between 1999-2000. Following this the boom really began, but growth rate began to slow down, which indicated a possible economic denial between 2003 & 2004, but 2006/2007, the bubble burst. A study produced in 2009 by 4 individuals, Razio P. Attanasio,W Laura Blow,Z Robert Hamilton and Andrew Leicester using housing price growth & consumption growth proposed 3 hypotheses; house price increases, increased household wealth & consumption; house price growth reduced constraints on debt due to increased collateral for homeowners and house prices and consumption are linked by common factors. This sounds very similar to the American bubble. You’d think they would have learnt from the British seeing as the UK bubble burst a few years before.




Source: ATTANASIO, ORAZIO P. et al. (2009)

Cambell and Cocco (2007) and Attanasio, et al. (2009) found in their findings that owner-occupiers who intend to remain in their accommodation for a prolonged time were hedged against price fluctuations because they weren't exposed to the buyers’ market. However, this meant that first time buyers couldn't afford housing which was the case during the bubble.

 
Notes:
1: GDHI (Gross Disposable Household Income)

References:

Attanasio, O.P., Blow, L., Hamilton, R. And Leicester, A., 2009. Booms and Busts: Consumption, House Prices and Expectations. Economics, 76(301), pp. 20-50.

McGreal, S., Brown, L., & Adair, A. (2010). List price and sale price variation across the housing market cycle. International Journal of Housing Markets and Analysis, 3(2), 89-99. doi: http://dx.doi.org/10.1108/17538271011049731

Nationwide, 2013. Housing Price Index (HPI). 1. England: Nationwide.

Office of National Statistics, 2011. Regional Gross Disposable Household Income (GDHI) 1995-2009. 3. England: Office of National Statistics.

Sinai, T. and Souleles, N. S. (2005). Owner-occupied housing as a hedge against rent risk. Quarterly Journal of Economics, 120, 763–89.