Property bubble finally bursting or the hoped for soft landing?

Indicators seem to show the Irish Republic’s booming property market finally seems to be running out of steam, no doubt helped by the fact that first-time buyers are most certainly feeling the pinch of six interest rate hikes between December 2005 and December 2006. You certainly know something is up when Dublin developers offer free mortgages for six months to first-time buyers.
While Twinlite Developments is offering its mortgage deal to attract customers, Gannon Homes is offering free kitchen appliances, timber floors, carpets and landscaped gardens at its Clongriffen scheme.

The slowdown is also clearly in evidence with data from the Irish Banking Federation (IBF) showing the value of mortgages switched between lenders rose to a record high in the final quarter of 2006, accounting for 16% of the market as the rate rises began to bite. There was also a 620 million euro fall in the value of new mortgage business. New lending in the final quarter of 2006 remained stagnant at 10.3 billion.

Not surprisingly, the main cause of the slowdown is the lack of affordable housing for first-time buyers. There were less than 9,000 in the final quarter of last year compared to over 11,000 in the same period of 2005.

With the first-time buyers at breaking point the banks are turning to those older homeowners sitting on equity. AIB, National Irish Bank (NIB) and Halifax have all cut the interest they charge on mortgages worth less than 80 per cent of the value of the property.

Admittedly it has to be taken with a pinch of salt but it’s worth mentioning that has reported a substantial (thanks to Finfacts) fall in asking prices for Irish houses in the last 3 quarters of 2006.

Overall growth in asking prices last year was just 3.8%.

Although substantially lower than other market indicators, the Daft Report identifies trends far faster than other sources as calculations are based on asking prices as opposed to closing prices. Since it takes three to four months from when a property is first advertised to when a sale is finally closed, the trends in the Daft Report are up to four months ahead.

Finfacts point out that there has been a substantial fall-off in second-hand property advertising in the traditional media, since late September 2006. Compared with an average of 45 full pages carrying multiple advertisements in the Irish Times Property Supplement, up to September end, the numbers in the four weekly issues in 2007 were 1, 2, 5 and 5.

Meanwhile, the number of houses advertised on Daft has quadrupled; up to over 55,000 in the last quarter of 2006 compared with 12,000 the previous year.

There are also major regional variations:

Sligo +18% in the last six months of 2006
Swords + 13.5%
Tralee + 11%
Dublin City 0% since July last year
have not grown since July 2006.
Clondalkin and Mulhuddart + 7%
Clonee – 9.4%
Maynooth – 8.8%

The last two figures would point to what most people think, that it will be those who have bought houses in the extended Dublin commuter belt who will suffer most.

Damien Kiberd, Economic Commentator, said:

“With the capital gearing up for significant high rise development the appetite for some suburban locations may be on the wane. Very significant competition among developers, particularly in North and West County Dublin where new suburbs are under construction tilted the market balance in favour of buyers, with developers forced to offer “extras” such as top class kitchens, designer planned gardens and “neighbourhood/lifestyle concepts” in order to achieve sales”

Brian Fallon, Director, said,

“With the now clichéd ‘soft landing’ being the consensus amongst economic commentators, the real news from 2006 is the transition from a sellers to a buyers market. First-time-buyers can breathe a sigh of relief as the double-digit house price inflation of the last 10 years is finally over and with it the pressure to get on the ‘ladder’ before it’s too late.

Supply is now at an all time high. There were over 55,000 properties for sale listed on Daft in the last quarter of 2006 compared with 12,000 the previous year. This vast choice means that buyers can afford to be choosy and also take their time finding the right place without the fear of prices shooting up.”

He would say that.