We have reached a turning point in the Welsh housing market – this is according to figures released today from Principality Building Society which, for the second consecutive quarter, show that house prices across Wales are increasing at a slower pace.
The Welsh Society’s latest quarterly house price survey (to the end of September 2004) shows an overall increase of 31.4 per cent in the 12 months to the end of September, which is around 1 per cent less than the increase reported six months ago.
The Principality welcomes this clear indication that the housing market in Wales is steadying, enabling recent sharp increases to fall back to a more sustainable level. However, the figures from the largest Welsh provider of mortgages and savings show that the market continues to be buoyant. A typical house in Wales has increased at an average of £2,510 per month during the last 12 months, from £96,076 to £126,205.
Peter Griffiths, Principality chief executive, said: “All the evidence points to the fact that the Welsh housing market has slowed down and recent house sales agreed through our estate agency Peter Alan suggest the slow down is accelerating. The uncertainty, however, lies around what happens next.
“Wales continues to experience consistently low unemployment together with reasonable levels of job security. However, with the rise in interest rates – which has increased the cost of mortgages – homebuyers’ appetites to put a foot on the housing ladder, or to upgrade to a larger house, have shrunk. Therefore the high level of demand for housing, experienced in previous months, is diminishing.
“In addition to this, leading economists have argued that a reduction in the ratio of house prices to earnings, which is now more than 30% above its long term average, is inevitable but no one really knows how much it needs to change and how soon a new equilibrium will be reached. People will argue that the future direction of the housing market is dependent on when we reach this equilibrium and as this is unclear, predictions from Economists differ from “the softest of landings” to “crashes of dramatic proportions”.
“We believe that the Welsh housing market is unlikely to crash or ‘burst’. But to continue with the balloon analogy, we believe the housing market is slowly deflating. Over the past few years we have seen prices rising at an incredible rate but I believe that the Bank of England is gently letting the air out of the housing balloon to orchestrate a soft landing as the rate of price growth slows over the next two years.”
Highlights of the Principality figures include:
An all-Wales average increase in 12 months from £96,076 to £126,205 (+31.4%). The average at the end of June 2004, stood at £120,277 (increase of 32%) and at the end of March 2004 at £115,287 (32.2% on previous year);
A North Wales increase during the same period from £84, 764 to £112,105 (+32.3%);
A Mid Wales increase from, £98,796 to £130,854 (+32.4%);
A West Wales increase from £78,950 to £104,690 (+32.6%);
A South East Wales increase from £106,831 to £134,339 (+25.7%).
Peter Griffiths also highlighted that the increase in house prices are encouraging homebuyers, and especially first-time buyers to opt for flats. He added: “In Cardiff, for example, we mortgaged almost 50 per cent more flats in this quarter than in the previous quarter. This reflects the attractiveness of new-build homes over the traditional and historic terraced houses. New builds tend to have lower maintenance costs, brand new fixtures and fittings as well as attractive locations.”
The average cost of a home in Bangor has risen to £107,968 in the last year, up an astounding 41.3% on the previous figure of £76,395, while prices in Cardiff have risen by an average of 20.6% to £157,604 (less than the average increase of 23.6% last quarter). In Newport by 36.7% to £124,577 (down from an increase of 37.3% last quarter), in Wrexham by 34.8% to £113,936 (down from an increase of 36.6% last quarter) and in Swansea by 40.7% to £121,201 (slightly higher than the 39.9% increase experienced at the end of the last quarter).
Peter Griffiths concluded: “Confidence is a fragile flower but the fundamentals outlined previously – employment and job security coupled with interest rates now nearing a peak – could suggest an unexpected surge in demand next Spring. I would not bet against this scenario emerging.”
