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Property predictions after an historic year
11 January 2009 By Michael Grehan
Predicting the future of any market is treacherous , so with that i n mind I will attempt the impossible and predict what will happen in the residential property market in 2009. But before looking forward it is wise to review the past, and in particular the recent past.
When the history books are written, there is no doubt that 2008will be considered one of the most extraordinary years ever for the Irish residential market. In 12 months the average price of a secondhand property fell by over 18p er cent, while the equivalent figure for Dublin was 20.1 per cent.
The true extent of the market correction, however, is more significant than these figures suggest. The first evidence of market correction began during the third quarter of 2006. Assuming the market peak occurred in June 2006, this suggests a market correction in Dublin of approximately 30 per cent in nominal terms over the 30 month period. T his gives us a clear insight into the correction which has taken place in the market. The combination of this dramatic price reduction and the 1.75 per cent interest rate cut which we have enjoyed over the past six months has had a very positive impact on the affordability of property, a factor which bodes well for enhanced activity levels in the weeks and months ahead. So what does this mean for the residential market this year?
Prediction 1
Activity levels will remain somewhat subdued in the opening weeks of 2009 as consumers begin digesting the impact of the price correction and mortgage rate reductions on the affordability of their desired property.
That said, we do anticipate an uplift in viewing levels in quarter one leading to an uplift in transaction levels in the post Easter market. Given the limited quantity of new stock coming on the market, it is likely that choice will be somewhat eroded in certain Dublin suburbs over the coming months.
Prediction 2
Looking specifically at Dublin, I believe that larger family homes valued at over €1 million are unlikely to see significant further correction, with price reductions of 40 to 50 per cent already realised and supply levels now tightening.
Prediction 3
Dublin residential properties valued between €350,000 and €500,000 have already seen a correction of approximately 30 per cent. This is currently the most active segment of the market and seasonally the first few months of the year are, in a normal year, relatively busy.
However, first time purchasers employed in elements of the private sector are likely to remain cautious. Possibly this may be somewhat compensated by people in more secure employment, such as the public sector and the medical and medically-related professions, making a decision to purchase.
Some of this cohort may see 2009 as a year to enter the market when competition for family houses in the capital city is unusually low. They will undoubtedly be looking to drive a hard bargain.
Prediction 4
Many Dublin residential properties valued at between €500,000 and €1 million have seen a correction of more than 30 per cent and are unlikely, in my view, to see much more. Activity levels in this market will rebound some what on the back of improved first time buyer activity, facilitating those who wish to trade up. However it will take some time to really see the impact on the ground and as in prediction 3, the profile of purchasers in this segment is likely to be those with secure employment.
Prediction 5
Investors are likely to remain cautious, because many of them have been burned by the turbulent equity markets. Indeed, generally investors do not tend to buy when there is blood on the streets - only when it is beginning to dry.
Some investors are already beginning to revisit the market seeking self-financing or nearly near-self financing properties in good locations. In particular, people whose pensions have been substantially eroded due to a collapse in equity prices may see investing in well priced, well located property as a way to recover losses and manage their own future financial destiny.
Prediction 6
In regional Ireland, I believe that properties located near strong employment hubs, in particular those close to third level colleges and hospitals will, in relative terms, be in greater demand. There is no doubt that first time buyers in such locations will be looking for value and may relish the opportunity to be able to buy affordable property in their own towns .
Prediction 7
Overall, I would anticipate that 2009 will, in football parlance, be a year of two halves - a somewhat sluggish opening three months for transactions despite reasonable viewings, being replaced with a period of heightened activity and price stability in certain areas particularly for scarcer type of houses.
That said, there is no doubt that the year ahead will remain a challenging one for the economy. However the pace of price reduction and the speed with which it has transformed the market place, though difficult to digest on an individual basis, will facilitate a speedy realignment of market conditions with increased affordability returning to the market place.
In conclusion, Irish property is unlikely to experience again the levels of growth seen between 1995 and 2006. That said, we can take comfort in the fact that we can anticipate an evolution to a mature, resolute economy with a solid housing market which is more affordable and accessible to our population than it was at any time in the past decade.
Michael Grehan is managing director of the Sherry FitzGerald Group
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