House prices have fallen – so what should you do next?

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The Independent - House Prices Falling  3So the news this week has been frantically discussing the first fall in property prices since the crash as if the end is nigh and with a certain amount of ‘I told you so‘ glee:

Whether or not single monthly fall really is a big deal is debateable. We’ve had 5 monthly drops in the last 24 months according to TheJournal.ie.

Still the press and property commentators are still falling over whether this is the highly anticipated end of the recovery, a response to the new mortgage rules or something else causing a dip in prices.

So is this the end of the recovery?

So is this the end? We don’t think so. This is a combination of a seasonal dip and the mortgage rules causing a few months of uncertainty which lead some buyers to pause and some vendors to panic. We know a single monthly change does not a trend make.

So is it the end? We don’t think so. This is a combination of seasonal dip and mortgage rules..

The way we read the market is on the sentiment we see and hear walking through our office doors, and on the standard economic principles of supply and demand. There are still too few properties coming to the market, and there is still a strong bedrock of demand.

And we’ve seen from experience that any sign of weakness in a strong rising market, where the economic principles are aligned, will be jumped upon by buyers as their chance to grab a bargain before the inevitable rise continues.

A speed bump on the road to recovery

I experienced this in London in 2008-2009. While the global economic meltdown was causing European, American and even the rest of the UK property markets to tank, London took a brief 9 month dip before an incredible bounce that has only just peaked 5 years later.

London still had the economic principles to support its property market – relentless demand from domestic and overseas, a strong economy despite the crash (thanks to economic and international diversity) and a desperate lack of supply of homes for sale to keep up with demand.

6 years later, London and Dublin have swapped roles.

Here the economy is picking up steam, finance is more readily available and incomes are finally stabilising and starting to rise. Meanwhile our housing supply is still at shocking lows, with too few second hand homes coming on the market (due to negative equity mostly) and years of underinvestment in construction of both private and social housing leading to lack of sizeable new homes schemes at final stages of completion.

The economic principles of our housing market are sound. Therefore in the absence of anything other than a disastrous change to incomes or mortgage finance (the Central Bank’s rules were not that), our property market is set to continue its rise.

The economic principles of our housing market are sound… our property market is set to continue its rise.


Buying or Selling: What should you do?

So what does that mean for you if you are a home owner or home buyer considering your next move? Here we walk you through our tips for home owners and home buyers in 2015:


First Time Buyers – With Mortgage Approval

If you’ve already been approved for your mortgage then the clock is ticking.

You’ve got under the wire before the Central Bank’s new mortgage rules, but you have only a limited time until that approval runs out. It’s typically six months but be aware of exactly what your bank’s conditions are and how long you have to get a deal agreed.

If you had your application approved in late 2014 that means you may only have until March or April to secure your first home. Unfortunately if your time runs out you will technically have to reapply for a new mortgage and be under 80% loan to value limit if purchasing a house over €220,000.

Our best advice is: Don’t panic.

Mortgage+agreement
Don’t rush into buying a house just because your mortgage approval is due to expire…

The last thing you need is to bid your way into the wrong house or a final asking price that’s unaffordable. That’s partly why the Central Bank intervened, in order to protect owners from over-extending themselves. Just because your mortgage is about to expire is NOT a good reason to rush into a huge financial decision that will affect you for years. If you don’t find the right house or fail to secure the winning bid perhaps it’s not the right time. Although it may be hard to hear, it might be better to sit back, save some more and have another shot in another year or two.

If you are certain this has to be the time to buy, you have two other options: widen your net or lower your requirements.

If you have to buy now and need to stay in your target location then perhaps you sacrifice a bedroom or some floor space, or even go with something cheaper that needs a bit of work – you can work to get the money together to refurbish later.

If the size or quality of your future home is more important than the location, then perhaps you look at different locations, further from the city centre for example. Commuting has become more popular as the road network has seen great improvements in the last few years and the price differential between major cities and more rural towns has never been greater.


First Time Buyers – Without Mortgage Approval

For Sale at €220,000. A 1-bed apartment in Custom House Quay, a 2-bed in Rathfarnham or a 5-bed house in Avoca.
For Sale at €220,000. A 1-bed apartment in Custom House Quay, a 2-bed in Rathfarnham or a 5-bed detached house in Avoca.

If you missed the boat on your mortgage approval, unfortunately you will have to cover your eyes as prices continue to rise in 2015 and perhaps beyond. Crossing your fingers and hoping for another crash is unlikely to do you any good.

If you’ve been frantically saving for the last few years only to find the goalposts moved, it can be very frustrating. But prices will most likely rise, with or without you. But there is a couple of options you might pursue to buy your home this year rather than having to sit and wait:

1. Lower your price range 

If you had your sights set on something pricey that’s now beyond your reach, whether because of the deposit you have saved or the 3.5x income rule, perhaps you should look for something more affordable. Sadly in Dublin now you won’t find much for less than the €220,000 to qualify for a 90% loan. You may get a small terrace in some inner city locations, a two-bed apartment in a good suburb or a 1-bed in the centre of town. However go just 30-45 minutes outside of Dublin and you will quickly find 3 or 4 bed family homes in good local towns for around the €220,000 cutoff.

2. Borrow off friends and family

If you have friends and family who might lend you some of the money to get you from a 10% deposit to the new 20% threshold, that might be an option if you can bear the repayment of the additional debt. The credit unions might even facilitate this by lending to parents who want to help their children buy their first home (People may be able to by-pass Central Bank mortgage rules – Newstalk). However, nothing is going to help you get over the 3.5x income limit which is probably going to affect more prospective homebuyers than anything else.

3. Check with your bank, you might still qualify for a 90% loan

Lastly, you shouldn’t just give up without a fight. Contact your bank or a mortgage broker anyway. The banks are allowed to act on their own discretion for up to 15% of the mortgages they issue in any one year. “This means, for example, that one in every five mortgages approved by a bank may be offered on an income multiple of between 3.5 and five times, while one in every six-seven trader-up mortgages can be approved at an LTV of more than 80 per cent.” Five things you need to know about the new mortgage rules – The Irish Times.

You might just be lucky and slip through the Central Bank’s net.


Existing Homeowners – Trading Up

4 Hazelwood Shankill - AllsopSpace.ie
Trading up – time to make a smart move.

If you already own your home and were considering trading up, don’t panic about this blip in the house price rise. It looks set to be only temporary.

There is still a severe shortage property available to buy on the market. Meaning if you do put your house on the market to sell, you will have a huge amount of demand from buyers, especially in the next 3-5 months while desperate mortgage-approved buyers attempt to buy before their time runs out (see above).

Chances are you should achieve a good price for your home in 2015. The biggest problem has been finding the next home to move to, as then you are negatively affected by the lack of supply and buyer competition. However, with some uncertainty in the market you stand a better chance to make a smart move. Getting a good price for your own property, while potentially finding a nervous vendor who is itching to sell before prices fall further.

If you are selling an apartment you may think there is no demand for your property – but you would be wrong. There are so few apartments available on the market that they get snapped up quite quickly – by investors or first time buyers. It’s worth trying to see what you will get for it, while supply is so low.

Our key advice to anyone selling is always the same – sell before you buy. Meaning you should always get your house on the market first before you go making offers on your next home. It ensures you know what you are going to achieve on your place before you find your dream home, and puts you in a stronger position as a bidder when you can say you are already sale agreed and ready to go.

Go to www.Churches.ie/know for more tips about making the most out of your sale.


Downsizers

Ard na Greine 1
Downsizing – big prices but find the right new home.

We are seeing plenty of downsizers active in the market at the moment. Quality 4-5 bed properties are more of a rarity on the market at the moment and their buyers have been barely effected by the Central Bank mortgage rules. So you will still achieve a good price for your current home.

Meanwhile the market for smaller properties that you may be looking at – apartments or small townhouses – has taken a little knock with the mortgage rules and buyer uncertainty. You should be able to swoop in and get a good deal. 

And a downsizer with cash or a very small mortgage – i.e. more purchasing power – will always trump a nervous first time buyer or cautious trader-upper in the agent or vendor’s eyes.

You are probably wondering if now is the right time to make this move if it’s not urgent. Yes, the price of your big house will increase in value in the coming years, but so will the value of smaller homes and probably quicker.

The answer is make the move when you spot something you like and can see yourself living with. Downsizing is hard at the best of times so finding the right new home is the most important factor. If it’s not available right now then perhaps wait until you see something you do like. There’s no rush.


Homeowners in Negative Equity

If you are looking to move but still in negative equity, you still have the opportunity to go to your bank to discuss your position. Negative equity loans were made exempt from the new mortgage rules so you don’t have a mountain to climb to reach an 80% loan-to-value on your property before you can ever move again. If you really need to move then see what your bank will allow.

With prices rising you will slowly be getting out of your debt, but that doesn’t help you when prices are rising all around you. So although the temptation is to hold on until your head is above water again, you might not be in any position to move even then. If it’s possible and it makes sense for your family, now might be as good a time as any.

If you want a valuation to see what your property is worth now, go to www.Churches.ie/valuations for a free, no obligation valuation and discussion with our experts.


Doom Merchants

Lowest stock levels since 2007
Lowest stock levels since 2007

If you are the sort to seize upon this news with glee, that the end is nigh for property prices, then we are sure you are in for disappointment.

If you are waiting for another crash before you rush in to buy we wouldn’t advise holding your breath.

There is still so much pent up buyer demand (despite the semi-punative new mortgage rules) and so little supply that the only way is up for house prices for the next two or three years – until a flood of new homes can be completed or another economic shock shuts down all lending. It doesn’t look likely to happen.


The rollercoaster continues…

It’s all to play for in a market such as this. A small dip will be jumped at by buyers looking for any respite in this relentless price rise, while 3,000 approved first time buyers will be desperate to secure something before their approval runs out.

We don’t want to be the agent that is always shouting “SELL RIGHT NOW” but if it makes sense for you to move then you should have no problem selling in 2015. The market will keep rising into next year so I wouldn’t worry either about what your house could be worth next year – make the move that makes sense to you and your family – but keep an eye out for opportunities to make a smart move this year.