5 reasons why now is a good time to buy or build

Architect David Sheridan on five reasons why now/soon could be a good time to prepare to build or buy.

AS you might know, house viewings have ceased and non-essential building sites are closed, so unless you’ve found someone selling houses on Amazon, your options are fairly limited when it comes to buying or building at the moment.

And even if you do find someone selling houses on Amazon, imagine the headache trying to return it, when you realise they’ve sent you a three-bed semi, rather than the four-bed detached house you ordered!

Right now, is obviously not a good time to buy or build, however, the perfect time may be just round the corner.

The opportunity won’t last forever though, which is why it’s important to be ready for it.

If you’re planning to buy in the next year, contact a mortgage broker now, find out what you’ll need for the banks and get all your ducks in a row (it may take longer than you think).

If you’re planning to build a new home or extend, contact an architect and find out what’s involved (it, also, may take longer than you think).

Planning permission is valid for five years, so even if you don’t want to build for a couple of years, it’s still a good idea to get the process started.

Here are five reasons why now may be the perfect time to prepare:

1. Interest rates are at historic lows

It has literally never been so cheap to borrow money to buy or build a house. The average interest rate on home mortgages is currently less than 3% (if you’re paying more than 3%, you may want to consider switching mortgage providers).

Just to put this into context; if you have parents who had a mortgage back in the 1970s or 80s, they were likely paying between 12%-16% interest. Hard to believe it. As it stands, interest rates can’t really go much lower, but they can certainly go higher.

Obviously, the downside to these historically low interest rates is you make virtually nothing on your savings. So, it’s a good time for anyone looking for a mortgage — but not a good time for savers.

That’s not necessarily a bad thing right now, considering spending rather than saving will be required to get the economy back on track. (Local spending that is, not buying on Amazon)

2. Builders are keen

Last week, I emailed three builders to quote for a small, and slightly awkward job in Cork city. All responded the same day confirming they would be interested. Ordinarily, in recent years, this would not have been the case. Prior to 2014/15, finding interested builders was the easiest part of an architect’s job. It usually involved a few eight-second phone calls.

In more recent times, finding good, available builders who are eager to tender, especially for the less desirable jobs, has been a lot trickier. I don’t know if things will revert to the beautiful eight-second calls of old, but I’m certain builders will definitely be keener post-lockdown than they were pre-lockdown.

And if you’re looking to build, keen builders are your friend. It won’t be just builders who are keen either. Basically, everyone involved in the construction process (architects,

engineers, surveyors, solicitors, kitchen fitters, tilters, plumbers etc.) will all be happy for your business. That’s a definite bonus for you, and for your pocket.

3. Supply & Demand

This may soon favour the buyer. If you didn’t fully understand supply and demand pre-coronavirus, you certainly do now.

Anyone who has paid €15 for a tiny bottle of hand sanitiser or anyone who has waited next to the stock room doors in a supermarket for the toilet roll to be wheeled out, understands supply and demand.

During all the toilet roll chaos, I was in Dunnes picking up some lunch. To my amazement, I saw a lone, jumbo, 32-pack of double-ply, Kittensoft winking at me from the far end of the aisle.

I couldn’t believe my luck.

I didn’t bother checking the price before I grabbed it, but I remember thinking, “if this costs more than a tenner, I’m putting it back!” It was €12.

I bought it. “Sure, what’s an extra couple of euro in the grand scheme of things? There’s no more out there right now” was my thinking.

Does all this sound familiar? If you replace toilet roll or hand sanitiser with ‘house,’ it’s pretty much what happened during the previous property boom.

Perceived scarcity and huge demand, fuelled by very easy access to finance, created a frenzy where people panic bought houses, and paid well over the odds, because “if we don’t buy it, someone else will, and there’s nothing else out there right now!”

I remember walking through town with my jumbo pack of toilet roll on display for all to see. For that five minutes, I felt like that guy driving a Porsche convertible, with the hood down, in early March. Everyone looking at me thinking, ‘pretentious’ but at the same time thinking, ‘Id love to have what he has’.

I didn’t want to get embroiled in the toilet paper frenzy but I needed toilet paper. People need toilet paper and people need houses, and if enough people need/want them badly enough at the same time, common sense and rationale goes out the window. “Sure, what’s an extra €20K in the grand scheme of things?”

However, these are tales from a sellers’ market. The property market is no longer a sellers’ market.

The unfortunate reality is, as much as 25% of the population could be unemployed for quite a period at the end of all this.

For these people, getting a mortgage will be neither a priority nor an option, hence why access to employment tends to be one of the key factors that impacts house prices and construction costs.

Therefore, for those of you still employed and able to obtain a mortgage, you’ll have much less competition when it comes to buying or building.

Obviously, the number of new houses and apartments completed this year will be well down, which means less supply, but these numbers will likely pale in comparison to the number of buyers that have been abruptly removed from the market. There will also be landlords and homeowners who are pushed to sell in the coming months, adding further to supply.

There is a chance this oversupply may be short lived though. If (and I know it’s a big ‘IF’) our government is successful in re-igniting the economy and getting a large chunk of the population back to work in a relatively short space of time, and the banks don’t tighten their purse strings too much, then I believe it won’t take long for housing demand to outstrip supply once again.

4. We are heading for a downturn

We are facing downturns in pretty much every market, and the housing market is no exception.

However, while the stock market was perhaps due a recession, it could be argued that the property market still had some road left to run.

The property market, like the stock market, moves in cycles. Economist Fred Harrison was one of the first to theorise that property cycles, on average, tend to last 18 years (see graph below). Let’s assume a new cycle starts after a recession with the ‘Recovery Phase.’

This phase (seven years on average) generally sees prolonged, steady growth with confidence increasing, slowly at first, but then gaining pace as more buyers enter the market (think the 1990s). Growth during this phase is more heavily focused in the prime city locations, than it is in the rest of the country.

This is often followed by a brief, mid-cycle dip or slowdown (2001) before the next phase, ‘The Boom’. Everyone remembers the boom years.

The ‘boom’ is the second growth phase of the property cycle (again seven years on average). This sees more and more home-buyers enter the market, buoyed by easier access to finance and more of it. The higher prices go, the more everyone assumes that prices will continue to rise.

Increasing numbers of first-time, retail investors enter the market, which is now being fuelled by sentiment and speculation, so when it does finally turn, it turns fast, and we have a market crash.

This is followed by the next phase of the cycle, ‘The Recession’ which according to Harrison lasts on average four years. Using this 18-year property cycle theory, 2008-2012 could be seen as the Recession phase; 2012-2019 as the Recovery Phase, which would mean that last year’s slow-down was the perfect time for a mid-cycle dip, before ‘the Boom’ phase started.

However, this is not an average situation we are in. Covid-19 has slammed the brakes on the property market. Nobody knows exactly what will happen when things start moving again, but it would certainly be naive to think it will just pick up exactly where it left off.

Both house prices and construction costs are likely to take a hit. It remains to be seen whether this ‘hit ’ goes on long, and deep, or whether the property market can get back on track after only a short dip. Obviously, neither scenarios are ideal, but they do present opportunities for those who are prepared.

5. You may suddenly have realised you need more space

Nothing like a lockdown to make your home feel about 10 times smaller. If you have managed to get through the last few weeks without feeling any way claustrophobic, or forgetting what natural light looks like, then congratulations, you have yourself a good home.

If there’s anything good to be taken from being trapped in your home, it’s the fact that you’ll have gained a greater appreciation of space and natural light.

Without going into too much detail here, the influence our homes have on our mood, well-being, relationships, productivity etc is huge.

We may not notice it quite as much in ‘normal times’, but we’ll definitely be noticing it at the moment.

If your house is north-facing (i.e. your living space and rear garden are north facing), go and ask your south-facing neighbour with the lovely extension, how the past few weeks has been for them. You might be surprised to hear them say, “Not too bad actually”.

If you find yourself envying this neighbour or friend, who is “actually enjoying” their time at home at the moment, then now is the time to do something about it.

Unfortunately, many people may not be in a position to buy, build or renovate for the foreseeable future, but for those who are, this may well be the perfect opportunity.

David Sheridan is a director of OC Architects and Design, with offices in Cork, Dublin and Kerry.