Bleak Prospects for Housing Market as Number in Negative Equity Continues to Rise

Ireland’s leading housing charity has expressed concern at the increasing level of homeowners in negative equity and the effect it is having on the housing market and the wider economy. Respond! Housing Association is making the comment following reports that declining house prices could result in almost 365,000 homeowners being in negative equity in just 2 months time.

According to Respond! Housing Association spokesperson Aoife Walsh the increasing level of homeowners in negative equity is dampening an already depressed housing market and delaying any economic recovery even further.
“The report this week that 365,000 homeowners could be in negative equity by June if house prices continue to fall is alarming. It means that almost half of all mortgage holders are repaying a mortgage greater than the value of their home. This is having a much wider economic impact than people realise as many of those in negative equity are reluctant to spend, opting instead to save for the dreaded rainy day. Consumer confidence is at an all-time low and this is having far-reaching effects across the whole economy. In addition anyone interested in purchasing a new home is holding back because of a lack of confidence in the market. With poor employment prospects, rising interest rates and expected tax increases, it is understandable that people are reluctant to purchase. The market is also being hampered by the massive excess of supply, currently estimated to be in the region of 350,000.”

The housing charity contends that high levels of negative equity is also affecting the banking sector as lenders are more risk averse due to the massive decrease in the value of mortgage based assets. Coupled with increasing numbers of homeowners in arrears, negative equity is causing problems for our banks that NAMA alone will not solve.

“Unfortunately there is a common misconception that negative equity is not a problem unless someone needs to sell their home but this is simply not true. We need to look at solutions to this crisis, whether it is debt forgiveness, short selling or negative equity certificates. With interest rates increasing, thousands more homeowners will experience mortgage difficulty this year and negative equity means they have no way out” concluded Walsh.

The housing charity is calling on the Expert Group on Mortgage Arrears and Personal Debt to consider possible solutions to negative equity. The group is to make recommendations to Government in June this year.