According to economists at the Central Bank national property prices have stabilised in the past 12 months. You might say that this was well overdue after 5 years of declining values. The question is, “where to next?”This is a difficult question to answer, but we can look at the fundamentals of the property market for a guide in answering this question. Value in any market is a function of supply and demand.
As we all know, population continues to grow and this is obvious to anyone who has young children starting school in recent years. A rising population will support price in the medium term.
The price drops in recent years have held many “would be buyers “ back as they feel that they can buy more cheaply in the future. However, this is now leading to a ‘pent up’ demand as the ranks of would be buyers increase from year to year of low market activity. Again this adds to the current demand to buy thus supporting prices.
On the other hand there is the lack of credit in the market. CSO figures indicate that mortgage lending is well down from peak and this is no bad thing, however, the rate of lending is very low. From experience I can say that the main banks are lending, but it is considerably more difficult for buyers to obtain a mortgage. Nonetheless young buyers are buying with mortgages, so it is worth speaking to the banks if you are thinking of buying a house.
For some buyers, particularly those who wish to sell a home, this is proving very difficult due to the fact that the property is in negative equity. Until such time as the banks offer flexibility in dealing with negative equity loans, this group will find it difficult to move on.
On the supply side, there is very little activity. This can be seen in the construction and planning permission data. There will be few new builds in the medium term. On the other hand there is a chance of existing homes coming to market through the repossession route as the government changes the rules in this regard. The new personal insolvency legislation is generally not judged to be friendly to the borrower and the number of houses coming to market by this route may not be as large as was originally thought.
The case of ‘buy to let’ properties, where the property was purchased as an investment rather than as a family home is different. The banks will no doubt apply more pressure in these cases and there may be an increase in supply from this source.
In summary, when all the demand and supply factors are taken into account, prices may have bottomed out. Nobody has a crystal ball, but based on the above analysis, this would seem reasonable. Other positive signs include falling unemployment and modest growth in the economy in general. At this stage, there is a very strong argument for would be buyers to balance the money lost in rent going forward against the cost of buying, even if prices were to drop marginally in the coming 12 months. Assuming that we have weathered the euro crisis, there should be stability and moderate improvement in store from here.
Eoin Kehoe is the owner of Kehoe Auctioneers, Carlow. If you have any questions in regard to selling or buying a house please contact him 0599131678.