Room to be happy over house price plunge
For prospective buyers, especially those of the first-time variety who are hoping to get on the lowest rung of the property market, the results will prove welcome as they confirm that the decline in house prices which began in the first half of 2007 is continuing apace with no signs that the market has yet reached its floor.
The index shows that average house prices have fallen by 9.7% nationally over the past 12 months, even though anecdotal evidence from around the country would suggest the decrease has been even more dramatic in certain segments of the market.
On the other hand, if you are someone who bought property in the past two years, you are almost certainly in the undesirable position of experiencing negative equity, (although the matter should not cause you undue concern if you don’t intend moving home for quite some time, if ever).
The figures show that the rate of price decrease has accelerated since the start of 2008 with average prices now down 5% since January, compared to a decline of 4.7% for the previous six-month period.
However, the reductions in house values come as no great surprise given the record increases over recent years which most experts acknowledged were at unsustainable levels. But the predicted soft landing has not been as feather-lined as many would have forecast or desired.
Permanent TSB’s general business manager, Niall O’Grady, admitted yesterday that the downturn had indeed been quite rocky.
Looking ahead, he said falling house prices were likely to continue for the immediate future as the economy was continuing to contract in the short term.
“The market is currently very competitive and it is very tough to stimulate demand,” said Mr O’Grady. He predicted that property prices at the end of 2008 will show an annual decrease of up to 10%.
In another sign of the deteriorating property market, ESRI economist David Duffy predicted housing completions would reach their lowest level since 1997 with just 40,000 units expected to be constructed during 2008.
However, he stressed the Irish economy remained reasonably robust, although he did not believe there would be any pick-up in house values until late 2009 or 2010 at the earliest, and then only on the back of a general recovery in the global economy.
In an era of falling house prices, Mr O’Grady acknowledged that the days of 100% mortgages were “well and truly behind us” and also admitted that tracker mortgages were likely to go out of fashion as it no longer made sense for lending institutions to tie their mortgage rates to the European Central Bank’s own rate.
As for the role of the Government, Mr O’Grady was reluctant to suggest that any specific measures should be introduced to reinvigorate the property market.
Noting that past experience indicated any government intervention, such as changes to stamp duty legislation, tended only to have a temporary impact, Mr O’Grady said the focus on restoring buyer confidence should be on efforts to get the Irish economy back on track and to increase international liquidity.
Despite the negative outlook for the remainder of 2008, Mr O’Grady said there was still plenty of activity in the housing market with evidence that developers were being forced to reduce prices on new homes in order to generate sales to service their own debts.
Permanent TSB, which accounts for more than 20% of the Irish mortgage market, said mortgage applicants were still being stressed-tested for a further 2% increase in interest rates to ensure their ability to meet repayments.
While first-time buyers have benefited from an 8.7% decrease in house prices over the past 12 months, the reduction is less than the average for other categories of buyers. The average price paid by a first-time buyer in June was €246,529 — a saving of more than €14,000 on the price at the end of 2007.
The latest house price index also shows up some strong regional differences with more pronounced price decreases of 7% in the border region and 6% in the south-west.
It is believed that the sharp drop in counties such as Donegal, Cavan, Sligo, Louth and Monaghan is linked to rising unemployment figures, while the decline in Cork and Kerry is related to a slump in demand for holiday homes.
On a positive note, houses in Galway, Mayo and Roscommon have only suffered an average 1% fall in value over the past six months.
As a general pricing correction filters through all aspects of the Irish property market, it is clear that certain sectors will ride the turbulence better than others.
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