News Gerard O'Regan

Tuesday 23 September 2014

Why you need a crystal ball to know when to buy a house

Published 21/06/2014 | 02:30

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House prices are rising by more than predicted
House prices are rising by more than predicted

The hedgerows and gardens of suburban Ireland were in full bloom these last few sun-filled days. Trees, flowers, shrubs, all provided a cascading unity of colour, powerful enough to lift almost any heart.

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But in Dublin in particular – throughout the endless arteries of suburbia – there lurked another ubiquitous presence in many a front garden. This was the "For Sale'' or "Sold'' signs erected by some of the city's better-known auctioneers.

It all pointed to something that potential house sellers, and house buyers, know only too well. The property market has been reborn in certain parts of the capital, and there also seems to be some stirrings further afield, in some of our main urban areas.

So is it a good time to buy? Is it the optimum time to sell – especially if you live in a particular neighbourhood?

As always, the pundits, the experts, the economists, and the politicians, differ when they look into that property crystal ball, and try and predict the future.

Yet there may be some signs, as to how things will pan out in the immediate to longer term, if we look to see what's happening across the Irish Sea. On a superficial basis at least, there seems to be one outstanding similarity, between here and the UK. Just as is the case with Dublin, property prices in the more sought after areas of London are steaming ahead of the rest of the country. The upswing is far more patchy across vast tracts of northern England, Wales and Scotland.

Latest figures show that on average, UK house prices over the past 12 months have risen by 10pc – the biggest jump for nearly four years. The typical home now costs £260,000 (€325,000). But the driver of the upturn is London, where the increase is almost 20pc. Outside the capital, and the affluent south-east of England, prices were up by a more modest 6pc. But these rampant London house prices are causing increasing concern that a much feared "property bubble'' is in the making. The result is that the British authorities are pondering various options to try and cool things down.

Chancellor George Osborne, has already given power to the Bank of England to impose a limit on home loans. The idea is that the size of a mortgage, should be strictly tied to the income of the applicant, and the value of the house being purchased. There are signs lending controls had become alarmingly lax, with reports that some borrowers were getting loans totalling five times their income.

Meanwhile, an underlying fear for all concerned is that interest rates – and consequently monthly mortgage repayments – could significantly increase in the next few years.

In further echoes of what happened to Ireland in our Celtic Tiger days, the Bank of England governor has warned that a runaway housing market could "wreck'' Britain's economic recovery plans.

And in another argument, all too familiar to those caught up in the housing market here, Mark Carney, Governor of the Bank of England, said one of the problems affecting house prices is a shortage of new homes being built in certain areas.

As politicians are prone to do, Prime Minister David Cameron was immediately in on the act stating that the governor was "absolutely right". Deputy Prime Minister Nick Clegg further enthused: "The big long-term problem is that we do not simply build enough homes in this country.''

But as is the case with Dublin, this problem may not be as easy to resolve as it seems on paper.

Space is limited in many built-up areas, and in both countries building land in sought after locations is already commanding sky-high prices.

For example if the "greenbelt'' area around London was rezoned by just one mile, an additional one million new homes could be built. But there are all sorts of environmental and other hassles with this plan. In any case, would it really bring down house prices in one of the world's most densely populated cities?

Only two years ago, the best economic brains in the Bank of England were scratching their heads, trying to think up ways to get some momentum into a very sluggish housing market.

Now just 24 months later, they are scratching their heads, trying to slow it down.

And in a bid to explain what some might consider a fairly humiliating turnaround for those who are supposed to know better, the bank's chief economist, Spencer Dale, used a Nigella Lawson-type analogy to explain why they had got things wrong. He suggested the housing market is just like cooking food: "It can pass from cool to hot – in a matter of a few economic seconds.''

For wannabe buyers and sellers here in the Ireland that's not really much of a consolation, when trying to gauge the market. But it's a note of realism – and it should never be forgotten.

Gerard O'Regan

Irish Independent

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