hooke & macdonald Q3 property report

[graphs didn’t copy across]

The Hooke & MacDonald Accessibility Indicator – a first for the Irish property market – calculates the up-front costs of an averaged priced home purchased by a first-time buyer couple as a proportion of their combined annual net disposable income (CANDI). The up-front costs include:

• the deposit amount (as determined by the average loan-to-value ratio);

• legal costs (solicitors’ fees, outlay and VAT);

• snagging the property (new home)

• a structural survey (second-hand home); and

• stamp duty (no longer an issue for first-time buyers since June 2007).

Accessibility differs from the more traditional measure of affordability, which looks at a first-time buyer’s capacity to service their mortgage debt.

Summary

• The proportion of disposable income first-time buyers need to meet the upfront costs of purchasing a home is significantly lower today compared to any point during the boom in the property market between 2001 and 2006.

• Nationally the average first-time buyer couple required 44.8% of their CANDI to purchase a new home and 45.1% of their CANDI to purchase a second-hand home in Q3-08.

• Accessibility at a national level deteriorated in Q3-08 relative to Q2-08 mainly due to tighter lending conditions and a fall in average loan-to-value ratios (due to the removal of 100% mortgage product).

• However, in Dublin, with prices down approximately 25% from peak levels, the Accessibility Indicator recorded an improvement in accessibility for new homes and only a marginal deterioration in accessibility for second-hand homes between Q2-08 and Q3-08.

• Affordability (i.e. the ability of a first-time buyer couple to meet their monthly mortgage repayments) has shown a distinct improvement during the past year due to falling house prices and the increases in mortgage interest relief available for first-time buyers.

• Despite the complete elimination of stamp duty for first-time buyers on all property purchases from June 2007, the up-front costs of buying an averaged priced second-hand home in Dublin in Q3-08 were still 16.3% higher than that for an averaged priced new home.

The Irish property market becomes more accessible

The property market has become considerably more accessible for first-time buyers since 2001, despite the rapid growth in prices that occurred between 2001 and 2006. Nationally, the Accessibility Indicator for Q3-08 shows the average first-time buyer couple required 44.8% of CANDI to purchase a new home and 45.1% of CANDI to purchase a second-hand home. This compares to peak levels of 65.1% of CANDI for a new home in Q1-01 and 81.7% of CANDI for a secondhand home in Q4-04.

The improvement in accessibility for first-time buyers in the face of rising prices is due to a combination of factors: (1) rising disposable incomes due to nominal wage growth and income tax reductions; (2) increasing average loan-to-value ratios; (3) competitive pressures exerting downward pressure on solicitors fees; (4) little change in the cost of snagging a new property or carrying out a structural survey for a second-hand home; and (5) stamp duty reform (in thecase of second-hand properties).

At a national level the Accessibility Indicator deteriorated in Q3-08 relative to Q2- 08 mainly due to tighter lending conditions and a fall in average loan-to-value ratios (due to the removal of 100% mortgage product). However, in Dublin, with prices down approximately 25% from peak levels, the Accessibility Indicator recorded an improvement in accessibility for new homes and only a marginal deterioration in accessibility for second-hand homes between Q2-08 and Q3-08.

Data from Irish Mortgage Corporation shows the average loan-to-value for firsttime buyers was at 90.4% in Q3-08, down from 90.8% in Q2-08. However, most lending institutions are still offering up to 92% finance to first-time buyers.

The Accessibility Indicator for Dublin is calculated using house price data from the Department of Environment, Heritage & Local Government available up to Q1-08 and (based on Hooke & MacDonald’s own data on new home prices and published estimates from other estate agents involved in the sale of second-hand homes) incorporates a 25% drop from peak in both new and second-hand homes up to Q3-08. The permanent tsb / ESRI house price index does not provide estimates of average prices for new and second hand prices in Dublin.

Affordability improves as prices fall

Meanwhile, affordability has shown a distinct improvement over the past year due to falling house prices and the increases in mortgage interest relief available for first-time buyers. At a national level, the average first-time buyer couple required 20.6% of their CANDI to service their mortgage debt in Q3-08, almost unchanged from 20.7% in Q2-08 and down from 22.2% in Q3-07.

Affordability in Dublin, based on property prices having already fallen by 25% from peak, is now back to 2003 levels, with a first-time buyer couple requiring just 22.4% of their CANDI to service their mortgage debt in Q3-08. This compares to 24.0% in Q2-08 and 28.0% in Q3-07.

The impact of stamp duty on accessibility

Between Q2-02 and Q4-04 second-hand properties experienced a sizeable jump in up-front costs relative to new homes as the average price of a second-hand home rose above the stamp duty exemption threshold of €190,500. This exemption threshold was increased for first-time buyers to €317,500 in Budget 2005 (along with a change in the stamp duty rates paid by first-time buyers) and resulted in a significant improvement in accessibility for second-hand homes, with the National Accessibility Indicator falling from 81.7% of CANDI in Q4-07 to 59.8% of CANDI in Q1-05. This effectively equalised the up-front costs of buying a new and second-hand property nationally.

However, stamp duty still remained an issue for first-time buyers in Dublin even after Budget 2005 as the average cost of a second-hand home in the capital remained above the stamp duty exemption ceiling of €317,500. It was not until stamp duty was completely eliminated for first-time buyers on all property purchases in June 2007 that accessibility for second-hand homes in Dublinconverged on that for new homes.

However, given the sizeable gap between the average price of new and secondhand homes in Dublin (estimated at 20.1% in favour of new homes in Q3-08), the up-front costs of buying an averaged priced second-hand home in Dublin in Q3-08 were still 16.3% higher than that for an averaged priced new home.

Interestingly, the elimination of stamp duty for first-time buyers on all property purchases in June 2007 did not affect accessibility at a national level given that, up to that point, the average price of a new home nationally never exceeded the €317,500 exemption limit (based on the permanent tsb / ESRI house price index). Equally, stamp duty has never been an issue for first-time buyers purchasing new homes, given that even before the elimination of stamp duty for first-time buyers in June 2007 the majority of new homes were already exempt from stamp duty (provided the floor area did not exceed 125 square metres).

Data notes

The calculation of accessibility and affordability uses a variety of data sources:

• National new and second-hand property prices – permanent tsb / ESRI

• Dublin new and second-hand prices – Department of Environment, Heritage& Local Government and Hooke & MacDonald estimates

• Average loan-to-values for first-time buyers – Irish Mortgage Corporation

• Legal costs, snagging fees and property survey fees – Hooke & MacDonald estimates

• Incomes – CSO and Hooke & MacDonald estimates

The methodology for the Hooke & MacDonald Accessibility Indicator closelyfollows the Royal Institute of Chartered Surveyors’ (RICS) accessibility index forthe UK property market, further details on which can be found at

www.rics.org/affordability.

CANDI and Affordability and Accessibility = makey uppey words.

Well, my MUPPET indicator suggests prices need to fall alot more before we stabilise

MU _ Multiple
P _ Prices
P _ Presently
E _ Exceed
T _ Threshold of affordability

"I know a guy who’s tough but sweet
He’s so fine, he can’t be beat
He’s got everything that I desire
Sets the summer sun on fire

I want candy, I want candy

Go to see him when the sun goes down
Ain’t no finer boy in town
You’re my guy, just what the doctor ordered
So sweet, you make my mouth water

I want candy, I want candy

Candy on the beach, there’s nothing better
But I like candy when it’s wrapped in a sweater
Some day soon I’ll make you mine,
Then I’ll have candy all the time

I want candy, I want candy
I want candy, I want candy… "

Affordability will not be going far for the next few years with a decline real incomes and income tax increases now on agenda. The only variable left is prices, substantially downward.

This could of course be some sort of phycological mind game. The name Candi is associated with luxury living in other cities…

Well almost…!

“Candi” seems pretty close to “Candy & Candy”, the developers in London who continuously make headlines selling ridiculously priced apts to the uber rich Oil Billionaires

Sean Dunne, oddly enough, has also decided to leverage off their “One Hyde Park” development with his D4 venture, calling it, “One Berkeley Court”.

What a great idea…

Ken McDonald. The Candyman.

youtube.com/watch?v=W4kR8OQCrlQ

Suncroft should be coming back on the market soon.

youtube.com/watch?v=k9B_6PH4dhU

And I talk to the filth and I walk to the door
I’m knee deep in myself
But I want to get more of that stuff
Of that stuff

Some candy talking
Talk

And I want
And I want
Some candy talking

Some candy talk

anyone else think the Government will make EUR9billion worth of spending cuts in 09?
No didn’t think so, I think therefore we can expect affordability to decrease after the budget, did that get into the Hooke and MacDonald report?

Nope dont think so, but its gonna get into the psychy of every Paddy and Mary before this thing ends and then we’ll be havin a few price drops. Ah theres nothing like a dose of reality to send the shills packin. 8-