THE property market nationwide is undisputedly in recovery mode; some areas are recovering with more gusto than others but overall, the trajectory is positive.
This should be good news for buyers and sellers: however, the residual hangover from ‘The Great Recession’ continues to haunt buyers.
Uncertainty has been replaced with rush buying; the construction halt, which was signalled as a problem three years ago is now at crisis point and the restricted access to credit is not showing signs of improvement in any meaningful way.
These are all general market difficulties that affect all buyers, and mortgaged-buyers to a worse extent.
Now throw some personal buyer considerations into the mix — for example, age, relationship status, family situation, employment contracts, savings and credit history — and we can see that the current obstacles to buying affect individual buyers in very different ways.
It may be argued that it is possible to buy well in any market and in any market conditions; we saw this firsthand throughout the period from 2009 to 2011 and even into 2012.
Issues faced by homebuyers today are, perhaps, more complicated than during the crash. By way of example, a family in Cork recently had to strike a balance when assessing their own personal circumstances, in the context of the local market.
In terms of the general, local market conditions, the city area this family are looking to buy in is a prime location for young professionals. It was forecasted earlier this year that the property market in Cork would overtake the Dublin market in terms of house price growth.
While this might sound promising, the reality is that Cork was slow to kick into recovery mode and is playing catch-up at the moment. According to the most recent property price report from Daft.ie, Cork saw the greatest rise in asking prices during the first three months of the year, up 7.2 per cent, ahead of the national increase of 4.6 per cent.
However, the current average house price in County Cork is now €168,000, or €195,000 in the city, and both are still below the national average asking price. This is generally not a positive market indicator for any regional city.
In practice, the volume of actual transactions is often a more telling indicator of buyer sentiment. On a national basis, the level of transactions for the first quarter of 2015 is down by more than 30 per cent from the previous quarter.
This is not entirely unexpected, as there was huge pressure on ready buyers and investors to purchase before the end of last year.
Investors were rushing to close transactions in order to avail of Capital Gains Tax (CGT) waivers, and mortgaged home-buyers were rushing to secure finance before the introduction of more stringent lending restrictions by the Central Bank.
This slowdown in transactions is a national trend and likely to continue throughout 2015 as the shortage of residential properties for sale reaches historic lows.
There have been almost 1,200 residential sales in Cork so far this year. With the estimated 4,000 available homes — less than 1,000 of which are within sustainable, daily commute to the city — house-hunters in the area will have little to choose from.
The general factors would suggest that now is a good time to buy in Cork, but only if the right property is available at the right price.
Alternatively, waiting for new, planned, developments to complete over the next 12 to 18 months might be the more prudent option.
It is at this point in the decision-making process that personal factors must be considered.
The family in question — let’s call them Mike and Mary — are in their mid to late 30s, with one young child. They are currently living in rented accommodation in the city. Mike is the sole provider and he has recently started a new, permanent, job.
Their financial position is strong; they have cash savings of €150,000. So far, so good; but Mike and Mary have a few important decisions to make.
As Mike has recently started a new job, he does not have the employment history that any lending bank requires in order to grant a home-buyer mortgage.
Question: should they wait two years before purchasing a family home with a mortgage, given that they know prices locally look set to increase? This would mean raising and possibly extending their young family in rented accommodation, which they are reluctant to do.
Mike’s age is also a consideration, as any mortgage approval over the age of 40 comes with more onerous conditions.
If they decide that now is the right time for them to buy, the next big question they face is whether to use their savings to acquire a long term family home or a so-called starter home.
Starter homes are risky in an uncertain market and buyers must be prepared for the fact that fluctuations might leave them unable to move in the short term (within a three to five year period).
On the other hand, their budget is well below the local average house price, which will inevitably lead to them getting a less satisfactory property in a less than satisfactory location.
An apartment is not going to suit their family needs in the long term, however, their budget simply will not extend to a house in any of the areas they wish to raise their children.
On balance, given the age and financial circumstances of the buyers, and appreciating their desire to own their own property immediately, the short term home is looking like the best option.
By using cash resources to buy a well-located apartment in the city centre, the family are essentially investing for a three year period, until such time as they can get a mortgage for a family home.
The main priority at this point is to protect their savings and to invest in a property that they have a good chance of selling in three years time, even if the market recovery does not continue. In the worse case scenario, the apartment must be one that they are willing to live in over a longer period if the market disintegrates again, which is unlikely but certainly possible.
If they choose to go down this route, they will need to research and understand the local rental market so that they can buy a property that an investor (most likely a cash investor) will want to buy in three years, irrespective of market condition.
There are currently less than 150 properties to rent in Cork. With homebuyers buying up investment stock for their personal use, this stock is diminishing and it is difficult to see where significant new stock is going to come from in the immediate future. (Buyers are strongly urged to check local planning authority websites to gauge future stock/approximate dates of delivery).
With consistently strong rental demand, below average asking prices and above average growth projection for the next year, Cork City is looking increasingly attractive for low-value investors.
While this will not be good news for mortgaged home-buyers, who find it difficult to compete with cash investors, it will be good for homeowners still struggling with negative equity and for developers looking to fund new projects in the area.
It is also good news for Mike and Mary, who are essentially using the time before they qualify for a mortgage to invest, and hopefully grow, their savings. Most importantly, their research prepares them for the risks involved should market or personal conditions change.
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