août 13, 2022


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The storm of supply and demand continues to ferment property

There is no doubt that 2021 will be a standout year when it comes to increasing property prices.

Although official figures ran into October by the end of the year, annual price inflation was at a very hot level of 13.5%.

It was the highest rate of property price increase in six years, a time of year when price gains typically begin to decline.

Most analysts now agree that full-year price inflation is likely to exceed 10%, with Davey upgrading its forecast to 13% growth in 2021.

Who would have predicted that we would be in this scenario when the epidemic spreads?

Certainly not professionals. Most of us agreed that we would be looking at results for real estate prices above 10% in March 2020.

And they were not alone among their international peers.

Most analysts expected major global real estate markets to experience recessions of varying degrees only to be proven wrong with prices rising at such a rapid pace.

Display mismatch

Although there are many factors that influence real estate prices, the only major driver here is the apparent mismatch between supply and demand.

Supply has improved during the year from its low in 2020 when would-be home sellers decided to halt the pandemic and put their properties on the market.

However, by the end of the year, there were signs that supply was back to all-time lows in almost every part of the country, with the exception of the capital.

according to Report from the property website Published this week, the total number of properties available for purchase online on December 1st was less than 11,500.

This was close to half the pre-Covid average of 22,500 in 2019.

Trinity College professor Ronan Lyons, author of reports, noted that « compared to early 2010, when there were more than 50,000 homes for sale across the country, this is an entirely different market. »

However, the Institute of Professional Auctions and Appraisers – IPAV – believes the shortage may not be as dramatic as the numbers suggest.

She says her agents have reported a steady supply of stock to the market, particularly as the year draws to a close, but they don’t advertise them on real estate portals.

“There is less need for this because agents have approved mortgage and cash buyers on their books for properties that come to market,” explained Pat Davitt, CEO of IPAV.

More is expected next year.

“In the current market, sellers know that they can sell their homes without having to wait for those who have not been screened as ‘ready to go’ by agents and some may not intend to buy but may be looking in the market, » he added.

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Perhaps sellers can afford that luxury in an environment where the pandemic has put them in the driver’s seat.

But it’s not likely to be that way forever.

The only thing working in the seller’s favor at the moment is the shortage of new homes that have to be built to keep up with demand.

New homes are back on track

There are varying estimates of the number of homes that must be built each year to keep up with Ireland’s demand.

The central bank has supplied it with about 35,000 units a year for the coming decades, although some analysts believe that is likely. much higher than that when taking different types of tenure—occupant owner, private rental segment, and social housing segments—into account.

We are currently in excess of approximately 20,000 units each year.

While it’s still quite far from where it should be, it’s not a bad outcome in the context of prolonged pandemic-induced construction shutdowns this year and last.

However, while the construction of new homes is back on track, the market is still highly dependent on the supply of existing homes, it seems, with new buildings not featured prominently in the transaction numbers.

In the year to October, for example, more than 85% of all housing transactions were on existing homes, according to Brokers Ireland.

Either the shortage of new homes is too great or new homes are out of reach for many buyers, particularly first-time buyers who can benefit from the Help to Buy scheme if they purchase a newly built home.

Jupiter’s aging face for the first time

Given the lack of supply and the rapid pace of price hikes, it is perhaps not surprising that the average age at which people buy their first home lags behind in life.

that market analysis A survey conducted by the Association of Banks and Payments in Ireland in recent months concluded that just over a quarter of first-time homebuyers were aged 30 or younger last year.

That halved in 2004 when six out of ten first-time homeowners were in that age group.

Although they have advanced in age, where means allow, they are increasingly dependent on parental assistance to climb up the property ladder.

Mom and Dad’s bank is under examination

One issue that has generally emerged this year has been the extent to which home buyers of all kinds get help from the family to make their purchases.

so called Mom and Dad’s bank It made headlines after the Finance Act contained a measure to change the tax treatment of such loans and transfers.

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Although the measure was eventually withdrawn, it highlighted the extent of this practice and the impact it might have on property price inflation.

According to mortgage broker Michael Dowling, there is no doubt that it is fueling price hikes.

“If you have 3 or 4 people who bid on the same house at €400,000 or €500,000, and one can take €50,000 out of the hat to make a difference, that will affect the prices,” he said.

And the loans are getting bigger all the time.

During his three decades in the business, he said he’s seen the parents’ contribution ranging from €10,000 to €30,000 to between €50,000 and €60,000.

« It wouldn’t surprise me 100,000 euros, » Dowling said.

In an age of housing shortages, those who can increase their supply of property with parents’ money are sure to get the keys to the house or apartment at the end of the day.

Those who have no restrictions on mortgage lending.

Should the caps be changed or eliminated?

The central bank is in the process of conducting a major review of it Mortgage Lending Rules With expected results next year.

It is currently offered a maximum of 3.5 times the income or combined income of applicants, and it is understood that a lot of pressure has been taken as part of a public consultation to change this requirement, allowing some leeway for low-income applicants in particular.

According to a report in the Irish Times in recent weeks, potential homebuyers earning less than €60,000 may be subject to a cap of up to 4.5 times the income when the review is completed.

There are alternative suggestions, such as one from Brokers Ireland which calls for changing the loan-to-income ratio from a multiplier of gross salary to a percentage of net disposable income.

mortgage market

2021 was a year of radical change in Irish banking With at least two lenders announcing their intention to leave the market here.

While the impending departure of Ulster Bank was widely reported, KBC came as a bolt of lightning out of the blue.

And while that might signal a downturn in the mortgage market, it was met with some surprisingly decent offers, primarily driven by non-traditional lenders.

Avant also continued to make strides in the market with a flat rate of less than 2% introduced in the fall of 2020.

The competition intensified with the launch of the first 30-year fixed-rate mortgage on the market with rates starting at 2.85%.

Finance Ireland has offered fixed rates for up to 25 years with rates starting at 2.65%.

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While they are marginally more expensive than rates offered on shorter-term fixed rate mortgages, they can be very attractive in the context of the current inflationary environment where UK central banks are already raising interest rates and the US Federal Reserve is signaling three rate increases in 2022.

On the other hand, we have had a low price environment in Europe for most of the past decade, and the European Central Bank has indicated that it is in no hurry to raise interest rates in response to an inflationary environment it considers « temporary ».

Brokers Ireland believes that this is a paradox for young people trying to gain a foothold in the real estate market in the current market.

“It is a tragedy and so bad from a social cohesion standpoint that younger and middle-income generations cannot own a home at a time when there has been positive turbulence in the mortgage market with historically low interest rates, even if that is the case,” said Rachel McGovern, director of financial services. At Brokers Ireland, it is ahead of the eurozone average, and the ability, for the first time, to fix these rates for fixed periods of up to 30 years.

« It will only add to the tragedy of the situation if these low rates are no longer a feature of the market by the time supply closes to meeting demand, » she added.

Next year

With an initial forecast for real estate price inflation of around 5% next year, analysts are beginning to revise these bullish expectations in light of the latest numbers.

But so far they don’t look anything like what we saw in 2021.

However, the problems that have largely rocked the market are likely to persist.

While the supply of new homes will play catch-up for many years to come, the potential absence of any shutdowns in the construction sector would see the completion number exceed next year’s better-than-expected result for 2020/21.

“Covid-19 has shaken the housing market in Ireland – that’s for sure,” said Ronan Lyons.

He concluded, « While supply appears to improve over the coming years, relieving pressure in the market, we will undoubtedly see more signs of a system under pressure before things turn. »

And the interest rate environment could pose more challenges, not just for buyers, but for mortgage holders in general — if not in 2022, then probably in later years.

Just another factor playing into the perfect storm of weak supply and rising demand – a storm that shows no sign of abating in the near future.