'Flight to quality' in housing market as demand rises
There is a "flight to quality" in the housing sector, with levels of activity substantively higher since the start of the year, the Sunday Independent can reveal.
House prices now are almost 20 per cent down on December 2006, when the market peaked, and letters and agents have reported a strong recovery in activity since January.
This is good news for first-time buyers who are now saving as much as €100,000 on an average house in Dublin due to the fall in prices and the absence of stamp duty.
This follows the publication of the latest EBS/DKM affordability index which concluded that it is now better for a first-time buying couple to buy rather than continuing to rent. Essentially, the report found that prices will fall further throughout 2008 before stabilising as the shortfall in supply begins to kick in.
It found that in 2008, people buying their first home will spend 21.9 per cent of their disposable income on mortgage repayments compared with 23 per cent in December 2007 and 26 per cent in December 2006.
Dara Deering of EBS said: "We expect affordability to improve further for first-time buyers this year on the back of slowing house prices and expected decreases in mortgage interest rates."
For example, in 2006 a house that was quoted at a guide price of €650,000 would have sold for closer to €700,000. Now a house quoted at €650,000 is probably selling for between €610,000 and €625,000.
However, economist Jim O'Leary said that the chances of interest rates falling back before the summer are increasingly unlikely, which will suppress the level of market activity.
Despite the concern over interest rates, the IAVI said yesterday that there are signs that the market is coming back to life.
Robert Ganly, President of the Irish Auctioneers and Valuers' Institute (IAVI), said: "While it is certainly busier than it was, prices are still much lower than where they were. We are back to the fundamentals and we are seeing a flight to quality, as always happens when things get tighter."
Given the slowdown throughout 2007 in terms of new housing builds, Ganly has said that there will soon be a shortfall in the number of new stock available which will act as a stabilising force in terms of prices.
Leading estate agent Peter Wyse said: "The time to buy is now. There is certainly great value in the market at the minute but it doesn't mean people can dilly dally. I am busier now than I have been in a while but prices are still way down on where they were 12 months ago."
- DANIEL McDONNELL
