Swings and roundabouts, highs and lows, ups and downs – these are just some examples of the range of idioms used when discussing property cycles, not just in Ireland but in every developed country around the world. In times of crashes and crises, the terminology gets more aggressive, we talk of peaks and troughs – boom to bust. Even non-English speaking countries adopt these English language expressions as a form of ‘industry speak’. The reason these expressions are used are used, is simply because they are so accurate. They describe trends, cycles, local markets and buyer behaviour perfectly.
Confusion arises when they are used to describe one single unified market for an entire country, when experience on the ground contradicts this. It is the same problem encountered in Ireland since late 2010 and early 2011 when trends in Dublin and Galway started to differ greatly from what was happening in other regions. For this, average house price figures or average drop from so-called peak prices are essentially useless to local buyers, sellers or homeowners. More than being useless, there is a danger with the breakdown of statistical data into average figures, in that assumptions are made that may lead to distortion in the extreme and benefit no one but the commentator. Recently, I heard an investment expert speak about the power of distortion when using averages to tell a story by announcing to the crowd “Ronan O’Gara and I each have an average of 50 caps for Ireland, unfortunately, he has one hundred while I have zero”.
This point was really hammered home to me by local estate agents I spoke to in the week following the budget. They described situations of ready buyers and ready sellers counties Clare and Limerick, but somehow the connection is missing. It appears that 20 houses and 20 buyers do not mean a happy balance, at best it will mean three or maybe four sales and a bucket load of wasted potential – not to mention wasted mileage and telephone expenses.
The market was broken down into mini-markets in late 2010 when recovery started to happen in pin-point areas, particularly in south County Dublin; thereafter followed more areas in and around the capital, then Galway, later Cork and now limited commuter towns of Dublin. Even with market uncertainty and restricted access to credit, the best applicants got credit first, the best areas saw recovery first, the best houses in those areas sold first and so on. By 2012, increased competition for fewer houses in more desirable residential areas saw property prices increases for the first time in more than five years. There was a perception that, also damaged by the crash, these lucky areas had bucked the on-going trend of collapse or somehow fast tracked to recovery. It was merely the swing and we are now back on the roundabout.
However, now local agents are seeing that what they thought was recovery in unexpected rural areas, was actually the natural release of pent-up demand and the over-supply, was in fact made up largely of unsaleable stock. As a result, they are facing into the new year with a dearth of serious buyers or genuine housing stock that will appeal to buyers and can sell for market value, such as it is. There seems little doubt that the cessation of the mortgage interest relief scheme prompted many first-time buyers who were on the fence to jump. These buyers were expecting the introduction of the new property tax and were not discouraged by the prospect of it.
The finance- ready first-time buyers who did not make the leap, chose not too based on the availability and affordability of houses in their chosen area. They made a conscious decision not to rush into a purchase simply to avail of relief that might amount to €20,000 over the course of five years. €20,000 is not an insignificant sum, yet, the government have ‘replaced’ it with a relatively paltry €750, which is the average property tax savings over the exempted three year period. If €20,000 was not incentive enough to enter the market, surely €750 will fail to hit the right note with buyers. It really begs the question, why did Minister Noonan judge it wise, or even effective, to grant the exemption to prospective homebuyers who will not value it and fail to offer such exemption to those who bought at the height of the boom and are struggling with mortgage payments and in many cases, mortgage arrears?
There will likely be a lull in the market for the early part of 2013, buyers have not been incentivised to buy – that is not necessarily a bad thing – but we do need some market stimulus, which did not happen in last week’s budget. Maybe the E-Centre proposed for Mullingar, to allow commuters work centrally, outside of the capital, is the way forward.