The engine of the economic boom came grinding to a halt this year, but optimists hope the housing collapse is near bottom, write Orna Mulcahy and Frances O'Rourke
MAYBE, JUST maybe, people will look back on 2008 as the year in which they should have bought property. A few years from now, when the economic gloom has lifted, today's prices - down as much as 40 per cent from the peak of 2006 - might seem like so many missed opportunities for first-time buyers and trader-uppers.
If that sounds like something that a property journalist would say, then consider Warren Buffet's oft-quoted advice to investors: "Be fearful when others are greedy, and be greedy when others are fearful."
Right now, people in the Irish property market are very fearful. A combination of tumbling prices, banks refusing to lend and fast-eroding job security has created an atmosphere in which people are afraid to commit to buying even a sofa, never mind a home.
"It's carnage out there," says one estate agent involved in the new homes sector, where developers are going bust by the week and an estimated 30,000 construction jobs have been lost in the past year.
A further 40,000 job losses are expected in 2009, according to the Construction Industry Federation (CIF), which expects house completion to be no more than 25,000 units this year - a far cry from the 88,000 new homes built in 2006 at the peak of the boom. Housebuilders have had to offer deep discounts as well as incentives such as full fit-out or rental guarantees to shift stock, but in many cases neither have worked and entire developments have been "mothballed" due to lack of interest.
As many as 35,000 new homes lie empty across the country - the equivalent, as one estate agent put it recently in The Irish Times, "to a ghost town the size of Galway city". Some of these homes "will never sell", according to Ed Carey, president of the Auctioneers and Valuers Institute (IAVI), "because they were built in places in which they should never have been built".
In some cases, banks - the same banks that offered 100 per cent mortgages to all comers in the boom - have refused to lend at all on certain categories of property, notably one- and two-bedroom apartments in the commuter belt. The first-time buyers they were built for can now afford to buy in the cities rather than in far-flung dormitory towns.
The silver lining is in the rental market, where rents are dropping fast as developers flood the market with unsold properties. Last month the rental website Daft.ie estimated that there were 18,000 properties available to rent nationwide - a rise of 133 per cent on the same period last year. Rents in Dublin city have dropped back by as much as 20 per cent this year as tenants have the power to pick and choose. Many of those renting are would-be buyers who are taking a year out to see where prices will go. They're heeding dire warnings from economists about the Irish economy and expecting to see at least 10 per cent more come off house prices next year.
Estate agents are weary of all this watching and waiting. Transactions in the second-hand market have dwindled to the point where they are selling no more than one or two properties a month. Nearly 20 per cent of agents are selling nothing at all, according to a recent survey by the Institute of Professional Auctioneers Valuers (IPAV). The country's big agency chains are closing branches, cutting pay and letting staff go. An estimated 25 per cent of estate agents have either lost their jobs or closed shop and more of the same is expected in 2009.
HOMEOWNERS, MEANWHILE, have seen the value of their property drop by as much as 40 per cent since 2006, a severe blow to those who used the equity in their home to invest in more property, or simply to fuel a better lifestyle through borrowings. Some of the worst hit are young buyers, encouraged by the hype of the boom to get on the property ladder as the market reached its peak. Anyone who bought in 2007, 2006 or even 2005 is almost certainly now in negative equity.
Selling has become a tortuous process involving serial price drops and collapsing deals. The IPAV survey found that more than 50 per cent of sellers had to reduce their price more than twice to achieve a sale this year. Worst affected are people who bought a trade-up home first, without selling their existing home. Investors who purchased apartments off plans in the past two years have also been badly hit by having to complete on properties that are not worth the money. Many such purchasers have attempted to get out of contracts, or at least to renegotiate terms on completion.
Buyers have finally found themselves in the driving seat, and they're taking their time to commit, often "gazundering" their way to a deal. Gazundering means offering lower prices as a deal progresses, knowing that a seller is likely to accept out of desperation.
They can do this because there is so much choice out there. The property website myhome.ie currently has a record number of homes posted on its site, and the average posting - the time a property takes to sell, or be withdrawn - has jumped from 100 days in 2006 to 220 days.
Houses are selling, but prices are a closely guarded secret. Earlier this year a row about accurate information on house sale prices blew up after reports that The Irish Times had complained to agents about exaggerated prices being submitted for publication in its property supplement.
The National Consumer Agency immediately warned estate agents that not to provide accurate information would be an offence under the 2007 Consumer Protection Act. Estate agents pointed out that it would be an offence under the Data Protection Act to reveal exact prices without the permission of both seller and buyer. This permission is rarely given and so price information, which had previously been revealed by agents on an informal basis, is now restricted. The near total collapse of auction sales (just 127 auctions were held in Dublin this year, compared with nearly 1,500 in 2006) has also starved the market of price information.
This lack of information has added to the confusion over what property is really worth right now. However, as the property year draws to its dismal close, there are reasons to be cheerful. Interest rates are on the way down, with yet another cut from the European Central Bank forecast for January.
This should bring interest rate levels back to levels not seen since early 2006. And though economists warn that house prices will fall further, sale agreed signs are beginning to appear. Canny buyers will have negotiated an extra 10 per cent or 15 per cent from exhausted sellers in the run up to year end.
No one knows if we are at or near the bottom of the market. The bottom will only be obvious in hindsight. Or, as Warren Buffet puts it, "The market will move higher. . . well before either sentiment or the economy turns up. So, if you wait for the robins, spring will be over."