Friday 20 April 2018

Home truths: Waiting for elves not the solution

Marian Finnegan, chief economist at Sherry Fitzgerald
Marian Finnegan, chief economist at Sherry Fitzgerald
Mark Keenan

Mark Keenan

In The Elves And The Shoemaker - the Grimm fairy tale about an old shoemaker and his wife - their business has declined to the point where they have enough leather left to make just one more pair of shoes.

When these are made and sold, that's it - the old pair are bunched and the poorhouse beckons. But the stricken couple are saved by a miracle: in the middle of the night, two tiny elves creep into their home and get to work with the leather to make the shoes.

These are so magnificently crafted that the high price achieved allows the shoemaker to buy leather for two more pairs. The elves keep coming back and making shoes and so on it goes until the old shoemaker and his wife are rolling in designer shoe loot and can retire. That's the fairy tale at least.

This week I found the property sector's own version of the fairy tale's down-at-heel shoe business when I came across the website of an estate agency which had the grand total of just two properties offered for sale.

The agency is run by two partners who are also the firm's only two estate agents. Their predicament might be good news for the vendors who now have an estate agent each to devote 100pc to selling their home. But the situation is obviously critical for the owners of the business, which is now the equivalent of a sweet shop with two gobstoppers or a pet store with one guinea pig and a canary.

An estate agency without property for sale is dead in the water. Without homes for sale, no one comes to your website, no one rings, no one calls in to your offices and it becomes extremely difficult to tout for more homes to sell. If this agency sells the two properties it has, its shop window is empty and it has cut the chance of more vendor clients coming on board.

Other medium-sized city estate agencies are faring only slightly better - their websites and windows filled with properties which have "sold" or "sale agreed" emblazoned across them. If you look closely, you'll see there's only a handful of properties for sale.

Ireland's property market is now so desperately distorted that the stock of property for sale has just hit the lowest level on record. The latest figures from the research department at Sherry FitzGerald says there are just 26,773 properties currently for sale nationwide - the lowest number since records began in 2009. In January 2010, there were twice as many homes for sale at 54,121.

Meanwhile, in Dublin there are currently 4,115 homes for sale - the lowest ever apart from January 2014 (3,025). Nationwide, the amount of property for sale has fallen by 13pc on this time last year.

Marian Finnegan, chief economist of the Sherry FitzGerald Group, describes the current stock-for-sale levels as "critically low" and "direct evidence of a market in crisis".

The latest data shows that as of January 2016 only 1.4pc of the private housing stock is for sale. For context, in the UK the rate of supply is currently at about 6pc and 3.5pc is considered the minimum for a properly-functioning market. Dublin's 4,115 properties represent less than 1pc (0.8pc) of overall stock. Cork City and Galway City are at 0.7pc and Limerick City is at 1pc. Meanwhile, the population is growing apace - up 10pc in the last decade. Could the supply picture get worse? Well, yes, actually.

Consider something else that many market observers have failed to note - an unusually large number of properties currently on the market are 'forced' sales, with banks either selling directly or in the background pushing stricken mortgage holders to get out. Finnegan estimates that these currently account for around 50pc of properties on the market. So in 'ordinary' circumstances, only half of the current stock of homes for sale would actually be on offer. So why don't people want to sell?

Widespread negative equity puts many off, while the high numbers of homeowners (around 60pc) still clinging resolutely to generous tracker mortgages aren't trading up anytime soon.

The perception that house prices are going up automatically causes existing home owners to sit tight - especially those in negative equity. There's the new lending criteria - many can't find an €80,000-plus deposit to trade up in cities.

Older empty nesters don't have a choice of smaller homes in their area to trade down to thanks to the lack of building. There's also a real fear of becoming 'stranded' and homeless - in the absence of bridging finance and the tight supply prevailing, anyone who sells can have huge problems finding another abode.

Finally, the process of buying a home has been stretched out and complicated vastly by the banks' own new lending criteria assessments and the need to comply with complicated new Central Bank requirements. It now takes six to nine months to move.

A new Government's housing policy simply has to amount to more than the outgoing regime's - whose idea of leaving it to the elves works only in fairy tales.

Indo Property

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