Is now the wrong time to get on the property ladder or are prices going to drop?


Q I moved back in with my parents at the start of Covid and decided to stay there so I could save money for a deposit. Finally, I feel like I’m ready, but is now the right time or are prices going to drop?

A That’s a great question and one that stumps many experts.

There is not straight forward answer so let’s have a look at some of the factors that influence what happens in the housing market to see what conclusions we might draw.

We’ve seen a surge in house prices over the past two years, so it’s not surprising we are starting to see a softening in the market. It is too early to say if there will be an overall decline year on year. But certainly the rate of growth should be nothing like it has been in recent years.

The pandemic had a direct adverse effect on the housing market. Demand was stimulated as savings rates increased, because, like yourself, people were saving.

Following the pandemic sale prices were much more than the asking price and this trend has now thankfully reversed. In some parts of the country, sales prices and asking prices are pretty much the same.

So, the heat has come out of the market, not just in relation to the asking prices themselves but also in terms of that relationship with the actual sales prices.

While the average asking price remains higher than at this time last year, availability has slowed and demand has weakened in both new and second-hand homes. This means it is unlikely there will be any substantial increases in housing prices.

What happens this year will depend on the path of interest rates. Rising interest rates has an almost instantaneous effect on housing. If inflation persists over the coming months, the European Central Bank will continue to tighten monetary policy and increase rates, as we have seen time and time again.

While you might expect that when interest rates go up, affordability is reduced, and prices go down but another factor play an important role in Ireland, i.e. supply remains low. Low supply results in mounting demand, which in turn bolsters house prices. As long as this remains a factor it is difficult to see house prices coming down significantly.

The government’s ‘Housing for All’ plan is focused on the private rental sector and social housing and less on home ownership, therefore this supply issue is likely to persist.

For example, in recent years the emphasis has been on building apartments solely for the rental market. Last year, for the first time, we built more homes for renting than for sale. Conversely, if we increased the supply of housing for sale instead, we would help people who are actually renting to buy a property.

Even with interest rate rises and supply affecting affordability, mortgage applicants are not deterred.

Home purchase remains attractive because the average cost of renting is still higher than the average repayments for first-time buyers, even after recent rate hikes, and banks and lenders continue to have a strong appetite to lend.

Overall, the softening in the market is positive news in the context of affordability in a housing crisis because it gives people hope. But the fundamental issue is we do not have a strong rental market and there are not enough houses being built for sale.

At present, there are many people genuinely concerned about what is going to happen when their lease expires. They won’t necessarily have the certainty to continue renting or be in a position to take the plunge and buy a house.

In summary, it is difficult to say whether now is a time to buy; much depends on your own current circumstances. House prices may come down and level off, but I don’t foresee a situation where achieved sales prices decline in a big way because demand continues to outstrip supply.

In a strong economy, high demand for housing will continue.

This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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