Originally published in the Sunday Business Post
The upward trajectory of the Dublin and Galway housing markets show no sign of abating. According to the latest report from the Central Statistics Office, September marked the third consecutive month of price increases. Nationally, the month on month increase was 0.9 per cent, while Dublin residential properties saw a significant 2.4 per cent increase from August. Unsurprisingly, houses in the capital are leading recovery with a 2.6 per cent increase last month. I will not use any swallow metaphors, however, realistically, we need to see a few more consecutive months of positive activity before calling the market and this is unlikely to happen.
There is little doubt that October and even November will prove to be bumper months also for Dublin, as home buyers, particularly first-time buyers, create an almost-frenzy in the market as they try to sale agree their homes prior to the year end. Any contracts closed before the end of the year, will guarantee buyers relief of between €3,000 to €5,000 per buyer annually. It is more than two weeks since Junior Minister Brian Hayes called the current tax relief for mortgage interest incentive ‘the offer of a lifetime’ for buyers. Most commentators ridiculed the audacity and ridiculousness of the statement as reminiscent of better times in the property market, however, anecdotally, home buyers have been throwing themselves into open viewings with gusto.
Estate agents I spoke with this week are enjoying the flood of offers, some more realistic than others, and described scenes of competitive bidding that have been forgotten in recent years. One particular agent in the Dublin 6 area told me about the interest she has in a two bedroom period home, with renovated attic to accommodate a third bedroom. The house came to the market recently with the strong list price of €380,000. Eight bidders later, the highest bid now stands at €446,000! Even the agent expressed surprise at the intensity of the bidding. Of the eight bidders, four were cash buyers and four were first-time buyers. In a bidding scenario such as this, I would expect one of the first-time buyers to win. Why? Simply because the house has passed its reasonable market value, any seasoned buyer knows when to walk away. But what happens when the first-time buyer’s mortgage lender sends a surveyor to value the house, there is no guarantee that the offer will be supported. While fall-through rates are decreasing again in recent months, the scenario described above is the lead cause of buyers not being in a position to complete on a purchase. Even if the bank Valuer gives the go-ahead, it appears evident in this case that any mortgage interest relief will be worthless of the price paid initially is too high.
This is not the approach taken by buyers outside of the capital. The hard fact is that if the Dublin statistics are removed entirely from the CSO data, residential prices nationwide are actually down. So where does that leave first-time buyers weighing up their options? Buying today and availing of the tax relief may cost a buyer more. In conversation with a mature first-time buyer in the North Kildare area this week, he expressed his property requirements as ‘a good house, in a good area at a good price’ – all subjective terms but easily definable within a buyers chosen area. This buyer described himself to me as being ready to buy but not in any hurry. For the rural market town in which he is looking, this is the ideal approach. While housing stock is slowly decreasing, demand has not returned to the town, giving this buyer a key advantage. He can afford to wait, and negotiate a discount that is likely to exceed the value of the TRS. And he is not alone; there are many buyers for whom waiting will be more profitable, particularly those buying in rural locations. The key is to know the local market and get a good sense of the supply/demand dynamic.
So, what can we expect of the market in terms of recovery and progression from January onwards? With mortgage interest relief gone, the property tax bill expected through the letterbox and mortgage lending nowhere near the level expected of a functioning market, evening the current levels of activity may prove unsustainable.
With the wealth of ‘potential’ buyers, those cautious creatures who previously sat on the fence but having jumped or been pushed into the market in the last quarter of 2012, spent – will there be more ready buyers to take their place in the market? Pent up demand was established from early 2011 and this sustained the market throughout 2012, albeit at much reduced levels. I am not convinced that the Irish market offering for 2013 will have the same appeal to buyers, certainly not domestic buyers outside of the capital. In this instance, I hope to be proved wrong.