Only a fool would say we have hit bottom but it looks like a corner has been turned

Identifying a property bubble just before it pops is well and good but recognising one before it starts to inflate is where the real skill – and money – lies.

While only a fool, or an estate agent, would say definitively that the bottom has been reached and prices are poised for a steady climb, most indications suggest that, in some areas at least, the worst of the bust is over. Last month property prices increased at a faster rate than at any time since the market imploded over five years ago, according to the Central Statistics Office.

Its latest report shows residential prices across the State climbing by 1.2 per cent compared to May, while a similar rise was recorded year on year, the first time since 2008 that prices climbed over a 12-month period.

The CSO figures paint only a small part of the picture. It relies on mortgage data to compile its statistics and with almost 60 per cent of transactions cash-only deals, its figures have to be considered incomplete.

Larger increases
A separate report published yesterday by Douglas Newman Good (DNG) includes cash buyers and it points towards even larger increases in sought-after areas. The estate agents – who have skin in the game to use a phrase of the moment – said second-hand house prices in Dublin increased 7.7 per cent since the start of the year while prices have increased 15.1 per cent since June last year.

A recovery of this scale this early in a new cycle seems optimistic – and undesirable as it has echoes of the boom time madness – but it seems clear that a corner has been turned.

Several weeks ago researchers working on behalf of the Central Bank assessed the user cost of capital and worked out that it is now cheaper to buy than to rent. They also found that prices have fallen to fair value or possibly below it.

The market still faces huge problems. One of the biggest is the absence of credit. The number of new mortgages being issued is one-tenth of the peak and far below the levels expected in a properly functioning market. In such a market the percentage of transactions that takes place is about 3 per cent each year. In Ireland last year, the rate was 1 per cent.

There has been an increase in the number of lenders however. A year ago there were only two lenders active in the market, AIB and Bank of Ireland, and they were hardly rushing to lend money. Earlier this year Permanent TSB came back to the table and now KBC is back in the game as is Ulster Bank. So now we have five, which has given the market a boost.

Signs of recovery are most evident in Dublin. All the indications from the Central Statistics Office in recent months, including yesterday’s data, point to a two-tier property market with house prices in the capital and other urban centres recovering while rural areas and the apartment market struggle.

Supply and demand is the reason. There is a lot of pent-up demand in urban areas. About 20 per cent of the housing stock is now rented, which is over 400,000 homes. If just 10 per cent of those in the rental sector decided to buy, it would have a huge impact on a market that saw just over 20,000 transactions last year.

Estate agents are all saying that areas such as leafy south Dublin suburbs, where supply is limited, are benefiting from a pick-up in the market and standard three-bedroom semis, which were guiding €350,000 last year are getting €400,000 now. And there are multiple bidders on certain properties.

Outside Dublin
In Galway properties are moving quite well, with settled residential areas outside the city, such as Claregalway, performing strongly particularly in recent weeks. Cork has also recovered in recent months while stock in smaller urban centres, such as Ennis, is moving quickly. Local agents have also reported strong sales in Sligo.

Industry sources say the insanity of the boom is not being repeated and if bidders feel a price is too high then they walk away. The type of buyer has changed as well.

People are skipping the first rung or two on the property ladder and looking for properties they may never move out of. Many of these buyers may have been about to buy in 2008 when the bubble burst.

Since then they have been saving money and as a result are now looking for loan-to-value deals of 60 or 65 per cent, a far cry from the 100 per cent plus deals that were the ruination of so many when the last bubble went pop.