How low can our property market go?
07 Oct 2011
How low can we go is the question being asked by everyone in the property market.
The International Monetary Fund said earlier this year that 58pc was a worst-case scenario for the fall from peak to trough.
Now, this week, property economist Ronan Lyons is forecasting that asking prices will continue to fall until at least 2013 which would mean a 60pc drop.
But, as pointed out in this column last week, that scenario has already been reached and indeed exceeded for some apartments.
Recent sales reports also show that a number of Dublin southside properties including ordinary family semis as well as well know trophy houses have fallen by up to 70pc.
Consequently if the actual selling prices have fallen that much then asking prices need to catch up. Vendors need to be realistic if they are serious about trying to sell in the current market.
Already properties which sell at auction have shown that some vendors are reducing their asking prices below the actual selling prices in order to entice bidders. On average Allsop properties are selling for 20pc more than their guide prices and some for up to 50pc more. These may provide guidance for serious vendors when setting asking prices.
Commentators too need to take these below-cost guide prices into account when calculating how low the asking prices may fall. Already their pessimistic forecasts have frightened off some buyers and have also inspired NAMA and IFG to develop price guarantees to provide some assurance that buyers will not suffer negative equity five years from the time that they buy.
NAMA's price guarantee proposal has also been criticised as a move to prop up the market and has raised fears that it could disadvantage private vendors trying to compete with NAMA sales.
But if NAMA does not bring in its price guarantee, there is a concern that it could lose out to foreign banks that are selling off their repossessed properties and mopping up much of the money held by cash buyers.
The longer NAMA delays its promised guarantee the more likely it will not be needed as prices will have hit the bottom -- if they're not already there.
But rather than bring in a guarantee that could distort the market, the simpler approach would be to improve the supply of mortgages.
Frank Conway, of Moneycoach.ie, says if recent bank lending patterns continue, fewer than 10,000 mortgages will be granted this year -- less than one-tenth of the 111,000 mortgages take-up in 2006 at the height of the boom.
He dismisses claims that the present-day collapse in mortgage lending is a result of falling consumer demand.
Instead, Mr Conway points to research which shows that the fall in home buyer enquiries has fallen by only 10pc, yet the fall in bank mortgage lending is down by 55pc.
He also calls for lending rules based on fair and practical criteria -- in other words buyers should come up with deposits of 10pc to 20pc and mortgage terms limited to 30 years at most.
This week's move by AIB to reduce the disposable income threshold for mortgage applicants will help more home buyers to qualify for mortgages. But Bank of Ireland also needs to get its finger out.
Mr Lyons points out that if the banks don't start lending soon, prices will fall further.
One would expect this to encourage cash buyers to hold off. In fact the auctions have shown that many cash buyers are not waiting around. Indeed agents report that cash buyers are not confining their purchases to the auction market.
Auctions have also shown that an overcorrection of asking prices, combined with improved mortgage supply, may well be the recipe not alone for reviving the housing market but also improving consumer spending and overall economic growth.