Property:House-hunters held their powder dry, writes Orna Mulcahy, Property Editor.
Ireland's seemingly unstoppable property market hit a wall in 2007. House prices tumbled for the first time in over a decade and the prospect of negative equity loomed for many first-time buyers of brand new homes. A combination of rising interest rates and ebbing confidence brought a decisive end to the boom. Few saw it coming. Last December, property experts predicted that 2007 would be an "easy as she goes" year, with modest house price growth, continued demand for new homes and a rise in mortgage lending. With the economy still strong, the property market couldn't go wrong, was the idea. Meanwhile, the smart money had exited the market in spring 2006 when house prices hit an all-time high, jumping by as much as 15 per cent in the first quarter. It couldn't last and it didn't.
From summer 2006 onwards the market was in trouble, with a flood of properties coming to the market, and house-hunters taking a raincheck. By the end of the year, a record 93,000 new homes had been built. Interest rates had been edging up all the while. By early 2007, after eight consecutive rises, rates had effectively doubled and buyers began to feel squeezed. Banks began to tighten up on lending, particularly to investors, who could not now rely on rapid capital appreciation. Some investors decided to offload their properties, adding to the oversupply. Much of the property that came on the market last autumn was still for sale in January, forcing sellers to drop prices. The woes of the US sub-prime lending market were landing on doorsteps in Dublin.
According to the most recent Permanent TSB/ESRI index, prices have fallen by 4.9 per cent since the beginning of the year, wiping more than €14,000 off the price of the average home. Dublin and the commuter counties have suffered most, according to the index.
THE PRICE DROPS have been more significant in middle-class neighbourhoods, where buyers have been able to negotiate prices that are 15-20 per cent off asking prices. Almost certainly these houses were overvalued to begin with, as sellers clung to the notion that their homes had to be worth more than the neighbours' homes made last year. A typical four-bedroom semi in Dundrum that might have been worth €750,000 at the height of the boom has slipped back to about €625,000. City-centre apartments, which had reached €350,000, can now be had for around €290,000, while €1 million-plus homes are getting offers of around €800,000.
House-hunters are reluctant to commit, and there's a general expectation that prices will continue dropping through next spring. The stamp duty reforms announced in the Budget put a little money back into buyers' pockets, but whereas in the past stamp duty savings were automatically factored into house prices, estate agents are not expecting this to happen now. As one southside agent put it, "buyers are making us sweat now. They are making low offers and sticking to them."
Estate agencies took a hammering this year, with turnover down by as much as 50 per cent in some of the smaller companies. Having cut their fees repeatedly through the boom to win market share, and with a dramatic fall-off in sales, income has slowed to a trickle. They're not likely to get a lot of sympathy from the public. Sherry FitzGerald's attempt to raise its fee from 1 per cent to 1.5 per cent caused a furore on the airwaves.
So what happens next? Buyers are prepared to wait, convinced further price falls are on the way. With aoversupply of new homes, buyers will be able to negotiate hard, particularly if they have cash, while the rising cost of capital internationally will make it difficult for investors to clinch deals.