Over the last few years, the proportion of cash buyers in the Irish marketplace peaked at close to 70 per cent. This was, relatively speaking, the highest level of cash-only transactions in decades and was not entirely unexpected given the scale of the global credit crunch. However, the mortgage market has now moved on and it was confirmed earlier this year that mortgaged buyers, principally home-buyers, accounted for two thirds of all residential transactions for the second quarter of the year. Almost 30 per cent of these home-buyers are people trading up. This is genuinely good news for a number of reasons, not least of all, it is the strongest indication so far that the current generation of young home-owners are finally combating the blight of negative equity. It also has a positive trickle-down effect for first-time buyers as it releases so-called ‘starter home’ stock back into the market. At a time when prices hikes are driven almost exclusively by chronic shortage, any new stock is to be welcomed. It is hoped that even a small increase in the number of second-hand houses will slow down the disproportionate prise rises seen over the past few years, particularly in the Dublin market.
There is no doubt that property values have increased hugely in recent years, however, I would venture to say that the rises are compounded by a premium levy; that is to say, buyers are paying market value plus a bit extra to secure the few remaining family home type properties in many areas. The danger with this type of pricing is that when new stock becomes available, which will reasonably take from two to five years, the older homes will not be able to sustain the premium paid, thus repeating the cycle of negative equity that has paralysed the residential market since the crash. There is little that government policy can do to speed up the supply of new homes within the next two years so it is encouraging to see trading-up portion of the market increase as it is the most effective stimulus at this time.
So what does this news mean for house-hunters? Essentially, it means that there will be a marginal increase in housing suitable for first-time buyers and the mortgage lending to back it up – which is equally important. It further means that for anyone currently looking for their first home, there will be a few more options to choose from but not many. It will not cause prices to drop, at best, it will hopefully slow down the rate of increase in key desirable areas. It is not a significant enough boost to encourage would-be buyers on the sidelines back into the game. For many, the most sensible decision is to wait for a period of two to five years for more housing stock to be delivered and then pay the market value for that property, rather than absorbing the additional scarcity premium today that might not stack up within a few short years. For potential buyers who are in a position to take their time, the mortgage new this week do not really change anything but it will offer some encouragement to house-hunters who are still trying to secure their new home.
For would-be buyers who are determined to buy as soon as possible, the focus initially should be on research as there is a huge level of new supply planned in half of the counties across Ireland. A quick search with your local authority planning office today will reveal the likely picture of the market in that area over the next five years. This information is publically available and its importance for buyers and sellers cannot be over-estimated. Most media commentary speaks in general terms and on a nationwide or regional basis – it has to – but this is not sufficient for buyers rely on solely. Such market analysis is a helpful starting point at best, there is no substitute for local leg work when considering such a huge financial move. The internet has rightfully changed how we approach house-hunting, giving us access to verified price data and most properties available, but it has also overloaded us with irrelevant information and has stopping buyers asking questions to the right people. To explain, if you want to know the history of a property, when the area last flooded, how traffic management works in busy times, how the youth culture locally affects residents, how responsive local authorities are or any other important issues then local residents are the people to speak to. Chances are, if you have been looking for your dream home for a while, you will already know everything that the internet has to offer – and you are still looking. I believe it was Einstein who defined insanity as doing the same thing over again and expecting a different result. Do yourself a favour, take the search off-line for a while, visit the area, chat to locals and see how your search evolves.
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