Tuesday, April 29, 2008

Buyer's expectations


Can the decision to buy be justified when it’s obvious that prices are going to get lower?

Despite the economic slowdown, I’m still confidant that in ten year’s time any price paid for a property now will seem like a really good one. This means that the two main questions I ask myself remain the same: ‘Would I like to live here? Can I repay the mortgage?’

However with no sign of a let up in the slump and commentators now all but writing off 2008 completely, a third question has been added: ‘How much less could I get this house for at Christmas?’ Following the initial drop in prices, many agents reported a spike in viewings. From a personal point of view, this was because years of spiralling prices meant that going sale agreed anywhere under the asking price was a victory for the buyer - we were eager to capitalise on the perceived value in the market.

As it’s become clear that the property slump is no 3-month dip, our interest has waned. The low house prices of today are now being compared to the lower prices of tomorrow as opposed to the high prices of yesterday. Like many other house-hunters, I’m very relieved that bids I placed on houses 6 months ago were rejected and am anxious to avoid making a similar mistake.

A quick search through property chat forums reveals that common opinion estimates prices to fall by a further 10% this year. While this is mostly based on hearsay, the logic behind it that as prices fell by 10% last year, they’ll do the same this year before levelling out in 2009.

So, the first time buyer is expecting the €380,000 average Dublin home to cost €342,000 at year-end, and consequently that would be the sum we’re willing to part with now. This is, of course, assuming that prices pick up in 2009. However, recent events have begun to suggest otherwise.

Just as the issue of oversupply was working to correct itself, the last two weeks chaos in the mortgage markets have moved everything two steps back by placing a stranglehold on demand.

Put simply, the recall of 100% mortgages means that many prospective buyers are out of the running until they figure out how to come up with a +30K deposit. The tightening of some offers from 90% to 85% means that another group of people also have to find more capital before they can buy.

So we’re now only left with the first-time-buyers who have a deposit secured. As demand drops, so too surely must prices?

In the new homes market, over-exposed developers will acquiesce to the demand for lower prices. However, in the second hand market, vendors who had just become realistic about today’s prices will surely not be happy about facing a further 10% cut. All this makes business even tougher for the estate agent. My first comment at most viewings is ‘they know they’re not going to get close to this asking, don’t they?’ Unfortunately, I think many of them still don’t.

2 comments:

propertymonkey said...

Well said Sub Prime. As David McWilliams said "it's like trying to catch a falling knife".

Ray said...

Gazunder, gazunder, gazunder . . .