Huge slide in house sales as bubble ends
By JOHN ROBERTSON
House sales fell dramatically in Shetland at the start of this year with average prices returning to the levels of two years ago, according to official figures.
Although the boom bubble has been pricked there are signs of buyers returning to the market in recent weeks – but the keen interest from southerners, which fuelled the skyward price rises of the past two years, has waned at least temporarily.
Shetland recorded its smallest number of sales in over five years during January and February with just 33 houses changing hands, according to data from Registers of Scotland. The last time it was so low was November/December 2003. In contrast January and February last year were unusually busy with 72 houses sold while the boom was still at its height. The previous four years saw sales for the two-month period averaging 49.
Stephen Johnston of surveyors David Adamson and Partners admitted it had been “desperately quiet”, particularly in January, with hardly any sellers even advertising properties. But he is aware of an upturn in recent weeks, possibly as people get over their initial money worries and pursue their desire to buy or sell a house.
The extra difficulties of getting a mortgage have not helped buyers recently, but Mr Johnston believes local people were spooked out of the market by what they were hearing about the economic crisis rather than any real sign of the UK recession buffeting Shetland’s shores. “Folk are obviously thinking longer and harder before they act now,” he said. “I think there has just been a steadying up of the market and folk have taken stock a bit.”
People on the mainland are having more problems selling for the prices they want, which has made it more difficult for them to continue snapping up properties in Shetland. Mr Johnston said: “I just don’t think folk can move as readily and there is a bit of fear around about property generally and they are just not looking to buy here as readily at the moment.”
One trend was for people in property boom areas to sell their ordinary house, buy a better one in Shetland and stick the rest of their profit in a pension scheme. Their buying power was grossly inflating prices here because they had the extra £20,000-£30,000 to bid 15-20 per cent above valuation. That inflation of the local market is reflected in the total value of house sales in Shetland more than doubling in the space of two years, from £31.6m for the 366 houses sold in 2006 to over £64m spent on 355 houses last year.
It is of course too early to discern a definite trend for 2009 with no figures yet released for March but there is further evidence of the market’s cold snap in the new year from the relatively low average price houses were selling for in January and February (£96,449), which was a return to the average of spring 2007. The total value of sales plummeted during the first two months of this year to £3.2m, down from £7.8 million for the same period last year – a drop of 59 per cent.
Mr Johnston sees several reasons for that, not all of them connected to the economic crisis. Anyone putting their house on the market since 4th January has had to pay for a home report which includes a survey or valuation, a range of extra information provided by the owner and an energy report assessing how much power a house uses and how environmentally unfriendly it is. This big change led some people to put their houses on the market early to avoid the complications and extra cost.
The average has also been lowered because cheaper properties have kept moving but the more expensive ones have been harder to shift. The biggest local seller of property, Dowle Smith & Rutherford, has 47 houses and flats for sale on its website, including 13 priced over £200,000. Property manager Robert Bell was unavailable for comment.
While properties up to £180,000 would sell Mr Johnston did not think there was the number of buyers around to bid for the increasing number of houses above that.
A well-known recent exception is the sale of South Ness House at Twageos in Lerwick in November for £400,000, which is twice what was paid for it in 2003.
The boom started to sag last spring, Mr Johnston reckons, and may not return for a while, much to the relief of local homebuyers. “I do feel it is going to go back to a more normal level where folk got a valuation and were able to buy the property at around that valuation figure whereas a year or a year-and-a-half ago, because there were so many folk active they were adding 15, 20, 25 per cent onto the valuation.”
Locals who were becoming frustrated by missing out on properties they wanted were also getting desperate and having to hike their bids. “I think [the slump] has taken a bit of the panic away and folk have now seen that house prices are not on an ever-upward graph so they are maybe thinking a wee bit harder about how much they offer.”
Statistics indicate that the price spiral peaked in September last year when the average house price reached a high of £126,925, still well short of the Scottish average during the year of £150,000-£160,000. The first time it topped an average of £100,000 was in August 2006, which went on to become the norm in 2007 and beyond. The level is always made artificially low by the number of cheap council houses sold at big discounts to their tenants. The number of houses being sold peaked in July 2007 with 48 sales in a single month.
The statistics do not paint an entirely accurate picture of the housing scene in Shetland because they take no account of the number of houses being built privately, which has been one of the most important ways of meeting housing demand in Shetland for many years, or by the council and Hjaltland Housing Association.
Number of houses sold in a year and total value
2006 : 2007 : 2008
366 : 375 : 355
£31.6m : £40.5m : £64m
Average house price and monthly average number of house sales
2003* : 2004 : 2005 : 2006 : 2007 : 2008
£64,690 : £72,831 : £74,519 : £86,260 : £106,657 : £111,335
20 : 24.1 : 24.4 : 30.5 : 31.25 : 29.6
*(2003 April-Dec only)