Is now the time to buy a home?
Although house prices are tumbling, mortgage rates will not remain low, so first-time purchasers will have to make a choice between holding back or taking the plunge, writes Charlie Weston
HOUSE prices have fallen by 32pc, wiping almost €100,000 off the price of the average property. The pace of decline picked up in the last two months of last year, according to the Permanent TSB/ESRI house price index. Prices have been falling for three years now.
This means that houses are the most affordable they have been for the past 25 years, with just 13.6pc of a couple's combined income of €77,000 required to service a mortgage, according to the EBS/DKM Economic.
Rates are at historically low levels, but are set to rise in the weeks ahead -- whether or not the European Central Bank puts up its rate.
Buyers will likely face higher mortgage rates if they wait until later in the year before buying.
So all those potential first-time buyers with mortgage approval in principle, who are waiting for the price falls to stop and the market to stabilise, should start buying now?
David Duffy, the Economic and Social Research Institute (ESRI) economist who puts the Permanent TSB/ESRI house price index together, admits that there is a time lag in the house price figures.
"There is a time lag in the official statistics, which means that it is going to be difficult to say when we have hit the bottom when it comes to property prices." This is because Permanent TSB/ESRI uses figures based on prices agreed at the point of mortgage drawdowns, but the sale price for the house may have been agreed months before.
Dr Duffy acknowledges that the house market may have stabilised, or even turned, before this is picked up in the index.
He adds that anecdotal evidence would suggest that the housing market is close to bottom, and he expects it to have stabilised by the end of the year.
But he warns potential buyers that it is notoriously difficult to call the top or the bottom of a market.
"If you are planning to enter the market, you have to recognise where the market is and not try to call the top or the bottom because it is very difficult to do that because of the time lags."
And Dr Duffy, who writes extensively on the housing market, warns potential new buyers to be wary of interest rate rises. "We (the ESRI) expect the European Central Bank rate to move up before the end of the year. We have already seen banks talking about increasing mortgage rates ahead of that because their cost of money is different to the ECB rate," Dr Duffy says.
"Rates are going up and that will increase the cost of finance. That will have a negative impact on affordability."
Potential buyers have to weigh up the likelihood of falling prices being cancelled out by higher mortgage rates.
"If you want to buy, there is a danger in waiting too long. But equally, people should not be taken in by people talking up the housing market," the ESRI economist adds.
Jim Power, an economist with Friends First, a financial firm that does not sell mortgages, reckons that the housing market has already fallen by 45pc, but that it has another 8pc to 10pc to go this year.
He expects that we will see signs of stability by the end of the year. But he also warns that mortgage rates are going up.
And he points out that potential first-time buyers who have mortgage approval in principle will not get the mortgage rate that the lender charges at the time they got approval.
The rate will be the one that applies on the day the house purchase closes.
Because of the "rate-rise risk", Mr Power reckons potential new buyers should not delay making a purchase beyond late summer.
"I would not go beyond that, because the bottom of the market will have passed by the time we know about it."
He advises house hunters to talk to estate agents in the area they plan to buy in to get a good idea of current prices, and to be sure to negotiate hard. Karl Deeter, of Irish Mortgage Brokers, warns that those waiting for the bottom of the housing market will not necessarily win if mortgage rates start rising.
This is because higher mortgage rates will wipe out lower house prices, he says.
Trevor Grant of Select Mortgages points out that mortgage rates, and fixed rates in particular, are at historically low levels.
Economist with property website Daft.ie, Ronan Lyons, says anyone thinking of a fixed rate should lock in for as long as possible at the current low mortgage rates. He urges potential buyers to sit down with a financial adviser and work out whether they should wait for further price falls or buy now to benefit from low mortgage rates.
Those thinking of buying should drive a hard bargain, and ensure they are getting a good reduction on the price the property was valued at during the peak of the boom.
Even when the market does stabilise, "prices are not going to rush back up", he warns.
In the meantime, rents are continuing to fall.