The latest data from the Central Statistics Office (CSO) confirms that Irish house prices are now officially past their April 2007 peak; just before everything got pear shaped.
It’s interesting timing. Because right now it looks like a perfect storm of economic rainclouds has gathered on the horizon, and at least some of these are likely to impact the house prices Irish people are able to pay going forward.
So far, many real estate agents have noticed a slight drop in property viewings and a slight slowdown in the pace of listings. Conversely, others have not noticed any change and are just busy in front of the door.
Real estate agents are optimistic sellers, not economists, but most privately expect some kind of gradual slowdown by the end of this year or early 2010 otherwise. So far, sales have not been affected, although prices do not automatically increase every time.
But there was one exception – for tired homes that need updating and have much lower BER ratings.
These homes have already seen their value decline this year thanks to the rising cost of building materials and labor required to modernize them. Now, above all, the threat of rising heating costs is making buyers even less willing to look at older and colder apartments. The government has made this worse by announcing plans to penalize those who burn fossil fuels in the future (most Irish homes are still heated with gas and oil).
This week I was contacted by three different sellers who were concerned that their real estate agent was not doing their job regarding their home sales.
When they read about rising real estate prices, among other things, they were a little surprised that their houses were only lukewarmly accepted by buyers. In one case there were no offers at all. In another case there was only one.
I checked it out and in all three cases it seemed that the agents didn’t seem to be doing anything unusual. Everyone seemed to have set their asking prices intelligently. Everyone had used the usual channels to present these properties online. All photos were reasonably well taken. What they hadn’t done was drop their prices after not taking a bite.
And all three properties are suburban Dublin family homes that are very dated and require significant cash outlays. All have Sub-C level BER ratings.
Therein lay the distress of all three.
So if you’re about to sell a house that needs a lot of work, you really need to forget the prices that have gone up so far this year. The real estate cadastres obtained in May, March and February for similar apartments are now completely irrelevant.
The value of your home has already shrunk throughout the year, even before interest rates, inflation and the like start to have an effect.
As I said, this is related to rising building material and labor costs. Wood, for example, is up 60 percent and insulating tile is up 80 percent. Other building components are down less since January but rarely up below 15 percent.
This means that the house in need of renovation in February that was worth €300,000 and had to spend €80,000 on it now has to spend €130,000 on it. The renovated house was worth 400,000 euros in February. And the modernized version of this house is still worth €400,000 for now.
But crucially, the unedited version is worth €250,000 today, not €300,000. So if you’re still trying to sell for €300,000, don’t be surprised if you don’t get any offers. If you’ve been on the market at this price point since February, taking it to €280,000 or €275,000 probably won’t help much either.
The fundamentals of the Irish property market are not necessarily particularly bad right now. Banks are not overwhelmed. And although the prices are high, the supply is actually still very small in relation to the housing demand.
But it’s everything else around the globe that looks decidedly sneaky.
It’s not just about inflation concerns and the fuel/heating crisis caused by the Ukraine war. Apart from record inflation in Europe, rising interest rates and rising costs for building materials and labour; there are other really heavyweight global economic concerns emerging as well.
Like that of an impending US stock market crash. There’s also a faltering Chinese real estate market which, if it falls, will be the mother of all real estate crashes (think ghost towns, not ghost towns!).
The resulting chaos could cast a spell over the rest of the world, depending on how much European and US interests have invested in Chinese real estate. These afflictions may never happen, but all these bad ducks are busy lining up.
What we do have for sure is rising interest rates after being on the floor for an extended period. This is definitely for cooling off purchasing power and property prices across the board for all types of homes.
The risk of the broader market being affected by the global climate in the coming year means there is urgent need to sell your Sub C-BER home today before more general factors take hold and general malaise joins your particular one.
If your house doesn’t sell, you’ll have to reprice it or you’ll end up getting even less in a few months. Estimate the true market value of your home as it may be fully renovated (your agent will tell you this) minus the current cost of doing the work today and then minus 10 percent. That’s a good guide.
If you hesitate as fuel/heating inflation and rate hikes have yet to have a real impact, you could find yourself in an even worse situation in the coming months, chasing the market lower.
Buyers who know they will have to spend twice as much on heating and 10 percent more on groceries, gas and just about everything else in the future will increasingly factor that into their ultimate willingness to spend on a home, along with rising interest rates.
It makes sense that over time this year they’ve been more open to homes with higher energy savings that require less work.
For the three properties whose owners inquired, all of them responded to my price reduction proposal with: “But we have to get X amount! We will not be satisfied with less.”
I explained to them that their needs and feelings would be bogged down and could cost them money in the future. Even if you’re not willing to take less for your Sub C BER home that doesn’t sell, take it off the market and stop wasting everyone’s time and your own. The market has always dictated the price, through the ups and downs. That’s one thing that never changes.
https://www.independent.ie/life/home-garden/those-selling-homes-need-to-cut-expectations-in-the-midst-of-already-peak-property-prices-41992940.html Those selling homes are having to lower their expectations given the already high real estate prices