Originally published in the Sunday Business Post, September 30, 2012
Property prices appear to have stopped falling, so now all we have to do is wait for them to rise – or do we?
It’s starting to feel a little more upbeat out there and it has been another positive week for the property market.
As the latest CSO figures show a second consecutive month of growth for Irish residential property prices, it appears that prices have stopped falling. The big question now is when will we start to see prices pick up? Will we have a period of stagnation or is the market likely to move quickly as confidence returns?
In reality, this will depend upon local supply and demand. We have already seen house prices in more desirable residential areas, particularly in Dublin but also in larger rural towns, increase as supply diminishes. We know from the Census 2011 figures that the number of residential units from 2006 to 2011 rose by less than 13 per cent. While such low levels of production over that period were necessary to deal with over-supply at that time, these levels are now unsustainably low. No further construction is not the answer, we simply need more of the types of houses that people want, in areas where they wish to live. It is not complicated stuff, it all comes back to supply and demand. How did we forget that and move so far away from the basics?
One of the important lessons that we have learned from buyer behaviour during this period of turmoil, is that apartments and houses are not interchangeable. Homebuyers who struggle to find a suitable house, close enough to work, school and family, with a south-facing garden and, well, character (the “we’ll know it when we see it” effect) are more likely to increase their budget or downsize their requirements than consider an apartment. They simply will not settle for an apartment merely because houses are starting to get scarce. They would rather wait than become part of the next generation of shackled apartment owners, imprisoned by negative-equity. For these buyers, the CSO statistics do not tell the full story. The market has not recovered, parts of the market are in recovery. Investors know this and they have know for a while. They were not reliant on state information, they tested the market to see how far their cash would stretch. Homebuyers do not have this luxury. They cannot afford to test the market and get it wrong.
CSO and similar housing reports, however flawed and limited in their scope, do have an effect on the psyche of homebuyers. When reports and commentary are negative, they strike fear and paralyse the market. But when they are positive, as we have seen over the past two months, they have a lubricating effect. I challenge anyone who disagrees to attend a few open viewings over the weekend. They will sit in traffic on quiet residential cul-de-sacs, park on grass verges, wait in the rain and then take their place among 40 competing house-hunters who are eyeing each other’s cars and shoes to gauge likely spending power. It happens.
Pent up demand is not sales speak, a total of 474,788 households were in rented accommodation in 2011. This represents a huge rise of 47 per cent since the boom years. A recent daft.ie survey on consumer attitudes revealed that 38 per cent of the respondents intended to purchase in 2012. Those tenants want to buy, are prepared to buy and are waiting for the right time. This is definitely starting to feel like the right time for many.
In addition to the glimpses of positivity and possibility that we have see in the market in recent months, first-time buyers will also be feeling the pressure of the TRS (tax relief on mortgage interest) deadline looming. October is very much the last chance for new buyers to avail of mortgage interest relief.
The main lending banks have indicated that first-time buyers, who wish to avail of the current mortgage interest relief scheme, should have their applications submitted by the end of next month.
So for all you first-time buyers, this means gathering a mountain of paperwork, finding your ideal home, bidding successfully, early agreement, no complications, smooth convayancing and your stars aligning between now and the end of the year. This is no small task but the rewards are great. Eligible buyers will quality for 25 per cent relief for 2013 and 2014, with 22.5 per cent relief in 2015 and 2016. The final year, 2017 attracts reduced relief of 20 per cent. This can be worth up to €17,000 to single buyers purchasing a house for €300,000.
So for buyers still sitting on the fence, it might be a good time to remember the words of Joann Thomas “Sometimes the best helping hand you can get is a good, firm push”.