Irish Times:6 reasons why the market will be slow to recover

mambo · January 5, 2012, 9:43am

An oversupply of housing and continued uncertainty are among reasons there is little hope of growth in the residential market, argues LORCAN SIRR

IN SPITE of last month’s budget measures aimed at stimulating the property market, there are six reasons why the market will remain slow to recover.

The National Institute for Regional and Spatial Analysis (NIRSA) at NUI Maynooth is one of the few bodies which has been consistently researching the housing market with any degree of rigour. It believes that the budget measures aimed at boosting the residential property market won’t work.

Firstly, prices are still falling, or “unwinding”, and most analysis suggests they will continue to fall for up to the next 24 months. No correction can happen until prices stop falling. But even when they do stabilise, there are other issues to take into account.

We have a massive oversupply of housing. CSO figures say 14.7 per cent of the total stock is vacant. My calculations say that excluding second and holiday homes, this is still a 9.65 per cent vacancy rate.

This is 60 per cent more than the Government’s rather generous vacancy base rate of 6 per cent, or some 240 per cent – more than most countries’ natural vacancy rates.

NIRSA holds that the notion that housing supply is running out in some areas is not supported by the data available. Until housing supply and demand align, they say, property prices will not increase.

Demand is, of course, about people wanting the product. Increased emigration coupled with a slowing of household fragmentation (think children moving back into the family home, for example) means that demand is very weak.

No demand means no sales; no sales means no upward price movement.

Buying a house for a home requires an ability to be mobile. According to NIRSA, we currently don’t have a mobile population as many households are locked into their present property through negative equity and simply can’t afford to move.

More than 8 per cent of mortgages are currently more than three months in arrears. Prices will have to rise considerably for people to be able to afford to move once more.

The greater economic picture has also damaged hopes of recovery. More than 14 per cent of Ireland’s working population is unemployed. Many people, employed or not, are severely financially strapped, with whatever reserves they once had considerably depleted. In the short-term, this doesn’t look like improving.

In addition, peoples’ access to credit is limited not only by their personal circumstances but also by the banks’ reluctance to lend. It will take some time for potential purchasers to build up deposits and reserves again.

People are also incredibly cautious and understandably so when they view the work of Nama, ghost estates, developments such as Priory Hall, the failure of local authorities to take developments in charge, and confusion over management of private developments.

Finally, with so much uncertainty surrounding both the property market and the broader economic situation, people have little confidence in both the property market, and according to NIRSA, in the property profession as well.

In my own view, undoubtedly the property profession gained little favour in the residential market over the years, with marketing often masquerading as research.

The profession, the market and society as a whole has, however, also been severely hamstrung by the lack of detailed official statistics: what sold where, for how much, and what size was it? These are basic figures which are found in any functioning market. Their absence undoubtedly contributed to the current situation in which we find ourselves. Stocks and shares are not bought in an information vacuum, yet houses often were.

Facts and figures also help to dispel the role that sentiment has on the market. It is much easier to talk up or down a market in the absence of facts with which to prove or disprove the claims being made for house prices.

The Property Services Regulatory Authority proposes to have a register of house prices by June 2012. This production of facts is good, if long overdue, news.

The problem is it will be using 2010 as a base year, which means we will still be missing data from the boom and especially the bust.

This is important information, so we can recognise similar patterns should they emerge again.

NIRSA’s analysis may not suit everybody. To my reckoning, there is a lot of sense in it. Indeed, maybe what we are currently experiencing is a shakedown of house prices to where they should be for a population our size. NIRSA’s posts are at irelandafternama.wordpress.com.

Dr Lorcan Sirr is a lecturer in the Department of Real Estate in Dublin Institute of Technology (DIT)

irishtimes.com/newspaper/pro … 24517.html

McQueen · January 5, 2012, 11:05am

What happens in Europe will be significantly more important than any of the above.

The ECB ultimately determines Irish banks ability to lend, which ultimately is the biggest determinant of Irish house prices.
Maybe in 15 years if people have saved enough in Bank deposits to pay back the ECB things will be different, but for now the ECB needs to be repaid before the banks get all frisky again

Further…Will Ireland stand up to Europe? If it does, will it be successful?
What will Europe/ The EUR etc look like in 12-24 mos time

No-one can know the answers to any of these things. Too many moving parts / seperare self interests etc

Maybe 10 years from now all will be OK, but I suspect there is alot more volatlity/uncertainty to come

dipole · January 12, 2012, 9:37pm

another reason not to own a holiday home.

esb.ie/esbcustomersupply/res … .jsp#ex-q3

ESB will now charge you an extra 9.45 per billing period for low electricity usage.

It costs 60 euro per billing period for a rural home not to use any electricity.

fishfoodie · January 12, 2012, 10:29pm

While the writer is an academic & not a media person, he still apparently has difficulty understanding whats happening. This one sentance shows just what is the cause of our slow recovery.

Prices falling is, ‘the correction’, how fucking hard is that to grasp

The last ten years were the problem, when the country collectively chose to believe in money trees. The correction is happening; it’s just taking forever because people still haven’t grasped that the stabilisation prices for houses is about the same salary multiple it was in 1920 & 1940, & 1960.

watch_wait · January 12, 2012, 11:22pm

File this paragraph under “W” for WTF???

Fenian84 · January 13, 2012, 1:07am

Something has to pay the €76000 average salary

FirstBass · January 13, 2012, 8:53am

fishfoodie:

While the writer is an academic & not a media person, he still apparently has difficulty understanding whats happening. This one sentance shows just what is the cause of our slow recovery.

Firstly, prices are still falling, or “unwinding”, and most analysis suggests they will continue to fall for up to the next 24 months. No correction can happen until prices stop falling.

But even when they do stabilise, there are other issues to take into account.

Prices falling is, ‘the correction’, how fucking hard is that to grasp

The last ten years were the problem, when the country collectively chose to believe in money trees. The correction is happening; it’s just taking forever because people still haven’t grasped that the stabilisation prices for houses is about the same salary multiple it was in 1920 & 1940, & 1960.

lettersed@irishtimes.com

I really think people need to hammer down the mailboxes of the papers and at RTE, to counter the bullshit that is written and broadcast. The vested interests with their PR departments have a constant ear and ready outlet at these places.

TheJackal · January 13, 2012, 9:47am

It’s funny how the Irish Times could have this article on Jan 5th basically saying don’t buy for 24 months minimum, but a whopping four days later another IT reporter produced this beauty

irishtimes.com/newspaper/pri … tml?via=mr

Stifster · January 13, 2012, 11:09am

which concludes…

Financial advisor and director of moneycoach.ie, Frank Conway says that if people come to him in connection with a mortgage the first question he asks is why are they buying.

“If someone is looking to make an investment or because they think the bottom of the market has been reached then I strongly caution against it. There is no way anyone can know when the bottom has been reached. But someone who is buying a home for the long term who has the troika of job security, financing and a property at an affordable price, then it is certainly not a bad time.”

Conway does not, however, believe the market is close to settling. The big problem, he says, is the banks are not lending.

“We need to see cash flow in the mortgage market and I do not see that happening. The conditions have created conditions which mean many people will not qualify for a mortgage.” Things like the occasional credit blip, recent employment after a period without a job or contract-only positions in line with public service recruitment bans are all working against people.”

jxbr · January 13, 2012, 11:38am

It is also funny how, when considering buying Myhome.ie, the bright sparks in the Irish Times did not type a few numbers into Excel, such as:

Number of Individual Houses Advertisments Sold Annually 80,000 Average Cost of Advertisment €50 Average Net Profit Margin Percentage 20% Net Profit Margin Per Advertisment €10.00 Annual Profit €800,000 Purchasing Multiple 7 Purchasing Price €5,600,000

to produce some reasonable purchase price scenarios instead of blowing €50 million.

Maybe these two funnies are somehow related.

Subway1 · January 13, 2012, 11:51am

where did you get those figures?

polaris · January 13, 2012, 12:11pm

Haven’t you heard, renters who are waiting for prices to fall so they can afford to purchase a house are not “people”