Last autumn, four houses that I pass every day on the way to school with my children came on the market. Since then, one has been sale agreed since the summer, but still hasn’t sold; another two are still on the market, while the final house was withdrawn.
A friend has had the sale of her house fall through twice in recent months, while another has been called back to bid on properties on which they were outbid first time round, but where the sale has subsequently fallen through.
It’s all anecdotal but it definitely does feel as if the fizz has left the property market.
And the data is edging towards this assessment also: when we look at sales in Dublin, transaction levels dipped by 1.5 per cent in the month of November. Moreover, latest figures from the CSO show that rate of price increases slowed to 7.1 per cent nationally in November, and as low as 3.9 per cent in some parts of Dublin.
Not only that, but figures from the Banking & Payments Federation show that the number of mortgage approvals dipped by 3.8 per cent from October to November – and this is despite the fact that banks would have been to open to lending for exemptions again.
And there have actually been price drops: a Knight Frank prime index shows that prices at the top end of the market in Dublin fell by 1.7 per cent in the 12 months to September, the first annual decrease since 2013.
So what’s going on? Is there just a temporary pause in the market or is it a sign of something more fundamental?
Slowdown
For Brian Dempsey, a partner with DNG in its Stillorgan, south Dublin branch, there is "no doubt about it" but that the market has slowed. "We've reached a plateau; a lot of cash buyers have bought already, and we'll only have modest increases unless something was to dramatically change," he says.
And the side effect of some sales stagnating has been a boost in supply, which in turn has a dampening effect on price growth. Long cited as the factor for rapid price growth in recent years – although some, such as Dempsey, would argue that it was never an issue at least in his part of south Dublin – supply has been inching up of late.
In January for example, there were 5,000 homes listed for sale on myhome.ie – up by 44 per cent on the 3,500 this time last year.
Ray Cooke, of Ray Cooke Auctioneers, which has offices in Clondalkin, Tallaght and Terenure, agrees. "There is a lot more supply on the market than there was 18 months ago," he says.
And with more properties available for sale, you can realistically expect fewer people turning up to view, and subsequently bidding on a property, as there are simply more to go around.
Back in June for example, Cooke would have expected about 25 potential buyers to attend a first viewing of a property, particularly on those priced at €300,000 or under; now it has dwindled to fewer than 10.
In south Dublin, viewings are busier. Dempsey had 55 parties view a recent property. But he notes that an air of uncertainty has crept in.
“Selling houses in Ireland is quite contagious,” he says, noting that people like to buy when others are buying. But now people might be wondering whether or not it’s a good time to buy. And of course the shadow of Brexit, and just what the UK’s exit from the EU might mean for Ireland, is on the minds of many.
“Anytime there’s uncertainty, there’s a slight shift in the market,” Dempsey says.
Declining affordability
But while supply is picking up, and price growth might be easing, affordability is still a factor. Indeed for Cooke, the slowdown is “purely down to affordability”.
“The market for the last couple of years has been very quiet over €500,000 because the Central Bank rules have been in place,” he says, noting that a three-bed in Tallaght, which would once have sold for €220,000 is now making €275,000, which is pricing many people out.
And a lot of the new stock coming to the market is still not affordable for people. As a Goodbody report from last year found, just one in 10 couples can afford to pay about €430,000 for a home; yet one in six new houses this year were sold above this value. So inevitably, the flow of potential buyers in this price category is going to slow.
The way banks offer exemptions has also toyed with the market; it means that a house which might be affordable for a buyer in March, may be too expensive in August – even if the price hasn’t changed.
Last year, banks ran out of exemptions – which allow second-time buyers to borrow more than 90 per cent of the purchase price, and everyone to borrow more than 3.5 times their combined incomes – very early in the year. This meant that potential purchasers had to delay their acquisition until this year, when properties became available again, which took the pressure off some sales.
Dermot O’Leary, chief economist with Goodbody Stockbrokers, says that it was this tightening of mortgage credit in the second half of 2018, that was “the major contributor to slowing price trends”. But the lack of mortgage credit also had a knock-on effect in the bidding process – and the successful completion of some sales.
Some potential buyers may have been unable to get approved for the exact amount they so wished, but still received an “approval in principle” letter from their lender. And, Dempsey says, many of them proceeded to bid on houses, up to the exemption limit, even if they were unlikely to get the financing until this year.
Some agents were cautious about letting such buyers bid; others weren’t so much. “Some agents will let it happen, some are oblivious to it,” says Dempsey.
But letting these potential buyers bid only served to enlarge the bidding pool and thus bid up the eventual sale price – even if they couldn’t complete if they won the bidding process.
“You might as well make up a bid,” says Dempsey of the practice, adding that it was “definitely” why some sales didn’t work out last year.
Unrealistic expectations
Another factor in the rise in properties on the market is the fact that some have been put on at bullish prices and simply aren’t selling. In certain parts of south Dublin, Cooke says, “a lot of stock is overpriced, hugely overpriced, and that’s why it’s been on the market for six to 12 months”.
Dempsey agrees that vendors’ expectations can be unrealistic. “You can get that at this time of year. People can be a bit bullish with prices, but the reality is, if people are realistic with the price, then they will sell.”
Dempsey says that a property he recently took on had an offer of the asking price at the first viewing. But the property had been put back on, at a discount of about €100,000 from the original asking price – and the vendor is still slow to accept.
“People’s expectations are extremely high, more so at the higher end of the market; from €400,000 up people’s expectations are always higher,” says Cooke. And part of this is the overhang from the boom years.
He has met potential sellers who say “I was offered €1.2 million back in the boom and I want to hold on until I get that”. But with prices still 15-20 per cent off peak, this isn’t realistic, he says.
Rising construction costs
As anyone who has tried to get some work done on their house will know, construction costs have rocketed in recent years. This means that a basic refurb of a house can stretch into six figures, while an extension will add another six.
This is pushing people into the direction of new builds, says Dempsey.
“New houses break my heart; they take all my buyers and all my bidders,” he says, laughing. Indeed many new builds are now A-rated, which can make the purchase of an old G-rated property – which admittedly may be in a more convenient location – a far more expensive option.
At Clay Farm in Leopardstown, for example, you can buy a four-bed A-rated house for about €500,000: you’ll pay about €50,000 more for a three-bed in need of renovation down the road in Stillorgan.
Cooke agrees. He’s currently building his own house, and has noted an 80 per cent increase in the cost of internal doors from the previous time he purchased them three years ago.
“That’s what’s killing the market on probate sales,” he says. “Before, people paid top dollar for them.”
And with more people seeking out new builds, there are fewer people left to bid on second-hand homes.
“That person [who bought a new home] may have previously bid on five to 10 houses down here in Stillorgan, which would have ‘puffed it up’ for want of a better description,” says Dempsey. “So with a smaller pool of people, vendors have to expect to accept less.”
Price drops in Dublin
Three-bed in Cabinteely: - 4%
Was: €545,000
Now: €525,000
Two-bed Rialto: -8.28%
Was: €435,000
Now: €399,000
Five-bed detached Ballsbridge: - 7.1%
Was: €4.25m
Now: €3.95m
