Supply is down. Is it time to trade up?

Fewer properties are coming on the market and some are being withdrawn altogether as buyers wait for the bottom to appear

AFTER TWO years of over-supply in the Dublin second-hand housing market there are finally signs that the glut is ending. Would-be sellers are holding off putting their homes for sale at today’s knock-down prices, while others have withdrawn their property altogether, postponing a sale until conditions improve. The result is a tightening of supply that could stabilise prices in the coming months.

Market data points to a dramatic slowdown in new supply, following price erosion of between 35 and 50 per cent.

The number of fresh properties coming on the market in January was 60 per cent down on previous years, according to property website myhome.ie which tracks new instructions with the country’s estate agencies.

According to myhome.ie chief executive Jim Miley, the number of properties offered for sale in January was “probably a third of what it was in previous years”.

This matches anecdotal evidence from estate agents who say that they are getting far fewer calls from potential sellers. One Dublin agency which has several branches across the city says it received less than 40 new instructions in January, compared to around 160 in January 2008.

Sherry FitzGerald, the city’s largest estate agency chain, says its new instructions were down by “about 32 per cent” in January. However, the agency has also seen an increase in sellers withdrawing their property from the market unsold.

“The number of properties that were on the market, but vendors withdrew, has increased by 46 per cent in January,” says MD Michael Grehan. “In some cases, because interest rates have dropped, peoples’ holding costs have halved. Maybe people are happier to hold on to property now that pressure has eased,” he said.

Meanwhile a report from Goodbodys Stockbrokers shows that Dublin now has the lowest supply of second-hand homes for sale in the country. It shows that 1.2 per cent of the second-hand housing stock is on the market in the capital, which contrasts with 3.8 per cent in Galway, 2.6 per cent in Cork, 4.9 per cent in Leitrim, and 6.1 per cent in Cavan.

Traditionally, many homeowners wait until the spring is well advanced before putting their home for sale with April and May being the busiest months of the year for transactions. This year there are indications that supply will be limited, particularly at the top end of the market. There is unlikely to be the usual spring rush of houses, apart from those being sold because of what estate agents are calling the “three Ds” – Death, Divorce and Difficulties of a financial nature. But at least one of these categories is also being restricted – in the case of divorce, judges have stopped ordering family homes to be sold, on the basis that they are unlikely to sell.

The lack of fresh supply is most obvious at the mid to upper end of the market with supply and sales at starter home level relatively strong.

“There has been no significant fall off at the more affordable end,” says Simon Ensor, a director at Sherry FitzGerald. “That is where the activity is at the moment. Sellers know that they won’t get last year’s price, but they also know it’s a good time to trade up.

“However, in the middle sector of the market – between €600,000 and €1.5m – there has been a significant fall-off in supply, and it’s most noticeable of all at the top end of the market, in the €2.5m-plus bracket where there is a very limited supply coming on. If people are being told that their house is worth €2m, when at one stage it was worth €3m, that is a difficult pill to swallow.”

Ensor points out that for most people thinking of trading down, conditions are not favourable. “You are going from a quiet market to a more active market, and the price differential and the potential gain has narrowed.”

But for those planning to trade up, the narrowing differential is an incentive to move while prices are depressed. “Trading up makes huge sense at the moment. Trading down doesn’t.”

However, it is still difficult to “motivate people to trade up”, says Pat Mullery of Douglas Newman Good. “It is a brilliant time to move up the property ladder if people have the confidence. The old supply is being reduced in price, and the new supply is coming at much more realistic levels.”

However, he says, buyers are still extremely cautious. “There are very few people in normal circumstances out there, sitting at home saying to each other, ‘let’s move house’.”

He is hoping to tempt buyers to view one upscale property that is new on his books – 32 Orwell Park in Dartry. The 279sq m (3,000sq ft) detached house is in good decorative order but has plenty of scope to extend. The asking price is €3.6m.

Two years ago, Sherry FitzGerald sold a semi-detached house on the same road for €4.6m, while across the road from number 32, two large newly built detached houses sold for an estimated €7m and €6.2m apiece.