Tuesday, November 11, 2008

Light at the end of the tunnel?

Over the last 2-3 weeks, we have noticed a marked upswing in home viewings. This has resulted in an increase in the number of pending offers received at our Clonmel office. The web stats are up and the phone is ringing more. We are all a little busier.

First-time buyers are coming back into the market. I see a lot of people that have been sitting on the sidelines, watching the market fall over the last year, now move to get mortgage approval, view houses and make offers. House prices are at about 2003/2004 levels, while interest rates are on the way down.

Money is still difficult to get, the banks are very selective about who they will (or can!) lend money to. It seems that job security is once again a prime focus for the banks. A lot of the newly approved potential home-buyers are in Government jobs, or very secure businesses.
The maximum loan-to-value ratio seems to be 92%. The people who are now bidding for homes have been saving for the last year or two and are in a position to come up with the 8% balance and solicitor fees of approx. 0.7-1%.

I speak to potential buyers numerous times a day. When we meet at a property, the state of the market is always a topic for discussion. A number of common themes are emerging. The general consensus is as follows:
1. House prices have fallen...a lot. First-time-buyer houses, which typically cost €230-250,000 in early-mid 2007, are now priced around €200-215,000.
2. Interest rates have fallen, and it seems are due to continue falling, improving affordability.
3. As stated, these potential home-buyers have spent the last year or two doing what their parents urged them to...saving.
4. Vendors are more acclimatised to the drop in prices and will listen to reasonable offers. They will include more in the house sale and are now bending over backwards to entice buyers.
5. First-time buyers are the only group that banks are targeting at present, so they know that they are the only buyers in the market. This gives them more confidence.
6. That same knowledge is also a big driver to them. Their friends are starting to put in offers on houses and they see more and more houses being marked as Sold on http://www.pfq.ie/ and in our office. They do not want to be left behind!

In other words, they feel that the market may have bottomed out, or be close to doing so. They realise that if the Government inject money into the system, resulting in more liquidity, then prices will stabilise, if not harden slightly. With lowering interest rates and lower house prices, it really is now much more affordable to buy than to rent. Of course, the money paid on a mortgage is actually for their own benefit, unlike rent, viewed as “dead money.”

Is this the start of an improved outlook for the housing market? Time will tell. All I know is that people that only a year ago thought they would never afford a home are now completing purchases and will be in for Christmas.

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