Better late than early, when it comes to buying in our market.

Our anonymous buyer is wrapping up his house hunting activities.

Just over 6 months since I started viewing houses in earnest, I’ve made the decision to stop. It’s not what estate agents want from potential buyers at this time but I feel it’s the right choice for me to make. The way I feel about it is that not buying over the last half a year has saved me a lot of money – so why stop now?

I very nearly bought at the start of 2008, convinced that anything less than the asking price was a victory for me. Five months on, I’ve recently viewed a better house two doors down from that one I nearly bought, priced 50K lower. I’m confident that if the house in between were to come on the market at the end of this year, I’d stand to make a similar saving if I were to buy it then.

So isn’t that enough: postpone rather than pull out altogether? Wait until the end of 2008 and save 100K or approximately 20% of the value of a home? Maybe not when 2009 now looks gloomy from an economic perspective and when people have started talking about the possibility of a return to the depressing 80’s again.

This is where confidence comes in. Not many people in my shoes have confidence in the market at the moment, it seems to me, and the result is that we’re hesitating. But it could be worse than that. While many involved in the Irish property industry will point to the national media’s scaremongering as a cause of this, I must add that a lot of the industry’s own commentary has not helped. Though many responsible property professionals and economists carefully judge what they say, large sections of the industry simply churn out positive opinion and tell us all the time that “now is a good time to buy” or that “things are beginning to look better”. When these assessments are then later being revised and re-revised downwards, all such comments lose all credibility and damage buyers’ perception of the entire property market.

Additionally, the property market is feeling the effects of being touted as a good investment over the last decade. For most people in this country, including many first time buyers, purchasing property is a form of speculation, not a judgement based on lifestyle and affordability. Clearly, it would be better for the market were this not the case but after so many years of emphasising the potential value of the assets we live in, it’s impossible to shift the goalposts now.

My decision is basically an admission that I don’t think I’m capable of accurately judging when the market is going to bottom out and that I no longer trust anyone to tell me when that’s about to happen. The result is that I’ll have to judge the right time to buy from historical data such as TSB/ESRI indices which will invariably be a month or so out of date. The downside of this is that I won’t get prices when they’re at their lowest as the publication of such good news will see the rapid re-entry of people like me into the market and cause prices to spike shortly after the bottom has been reached. Still, it’s better to be a couple of months late then a year or so early … in this context.

And even then, I wonder could my nerves falter for other reasons, more about the panic of it all, the frenzy. What this country needs is a calm, stable market so that buyers such as myself can act rationally based on facts and figures. I would even go so far as to suggest a moratorium by the industry on economic predictions and that it just let people get on with the business of buying and selling their homes.

Talk to Joe!

Tuesday’s RTE Radio 1 Liveline show with Joe Duffy involved a hunt for the nation’s cheapest brand-new, circa 1300 sq ft, 3-bed, semi-detached property. In the end, it was more or less a tie between a 159K unit in Roscommon and a 165K turn-key in North Donegal.

Strangely enough, there wasn’t the controversy, uproar or recent buyers sobbing over negative equity that you’d expect from a Joe Duffy show on the property market. The premise of the show seemed to be that if you were an auctioneer with cheap or discounted property, you could ring up and advertise it live to the nation.

There wasn’t much time given to prolonged discussion of the property market as most of the agents who came live on the air were simply reporting prices or price cuts. The one overriding message that came through was ‘houses will sell when priced correctly’ and ‘we’ve some great value down in this neck of the woods’. Unsurprisingly, Dublin agents did not feature strongly.

The winner in the price cut category was a development registered with Sherry FitzGerald in Longford that had been cut from 365K to 250K. The agent concerned said that now that the price was right, he expected them to be sold within about 48 hours.

When speaking about the need for correct pricing, one agent made the interesting observation that prices had been artificially inflated at the beginning of the downturn by inexperienced auctioneers trying to get properties on their books. He said that many of the price drops we’re now seeing are the result of these previous overvaluations rather than further decreases.

Towards the end of the show, one eager auctioneer announced that while the show was on air he had called a construction company and received authorisation to cut prices at a development by 15K. A price cut was probably in the pipeline, but this way he got to announce it live to the nation. Joe’s pride at having someway instigated a price drop was palpable.

While prospective buyers outside of Dublin will have enjoyed the show, those of us house-hunting in the pale found it galling. Obviously, new homes with a price tag of less than 200K are enormously attractive but centralisation is an economic reality rather than a choice, and for most of us, paying 159K in Roscommon would make about as much sense as paying 32K in Rudrapur.

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.

The five stages of property grief

Buying a property is one of the most draining things the average person ever has to endure. While thicker-skinned investors cope more easily, the level of emotion that the first-time-buyer invests in the property purchasing process means that its highs and lows are enough to leave them a gibbering, shivering heap on the floor.

For this reason, buying a property sometimes compared to grieving as one of the most stressful times of one’s life.

It follows that as one can map five emotional stages of grieving, so one might be able to identify 5 emotional stages of property hunting grief.

Stage one: Denial – ‘it’s not happening’

“There is no way that we’ll end up paying that much for a house. The market will fall apart any day now or a really cheap one will come along. That is just far too much money to ask for four walls and a roof. And a 40 year mortgage? Not a chance!”

Stage two: Anger – ‘it’s not happening fairly’

“Bloody investors! They got into the market at the right time and now we’re getting ripped off so that they never have to work another day. And agents? -don’t even get me started on them! – There’s no way that place was in need of just slight modernisation’

Stage three: Bargaining – ‘it’s not happening their way, no way!’

“Alright, they’re asking for €450,000 but €390,000 is still a lot of money. I mean, I’d love that much money! Surely that’s enough for them … OK €400,000 then!”

Stage four: Depression – ‘it’s not happening at all’

“What’s the point in arranging all these viewings? We’re never going to be able to afford a nice place. Maybe we should just move country or something.”

Stage five: Acceptance – ‘it’s happening … someday’

“OK, so the market is the market and we have to accept that and become more realistic about our expectations. We need to stop becoming so emotionally involved and at some point the right property will come along.”

By the way, stage five is where the savvy agent pounces: The initial enthusiasm for solo house hunting has been drained from the purchasers, their defences are weakened, and expectations are significantly lowered. They’re suddenly interested in a greater variety of houses, and a “good agent” may even be able to persuade them to buy something they would never thought they wanted. But, of course, a “good” agent would never dream of doing such a thing, now would they!

"Customer for life" with Sherry FitzGerald

As part of my house-hunting saga I was invited to a Sherry FitzGerald talk in Clontarf Castle the other night. We were given a brief overview about the Irish economy and the past, present and future of the property market by Marian Finnegan, followed up by a bit of a sales pitch from Sherry FitzGerald Mortgages.

The overriding message that came through was that Sherry FitzGerald is a seriously professional organisation. Looking and listening to their well-turned out employees, one is given the impression that no matter which Sherry FitzGerald agent you’re dealing with, you’ll get the same straight talk, the same grounded opinions, and the same honest answers. Of course, this is exactly what buyers are hoping for in the agent they’re buying from.

The talk offered one everything one needed to know about the property market in 20 minutes. At the end the room was still hushed; everyone was waiting for an answer to the big question: are prices going to drop much more?

Being the cynic that I am, I expected a closing message about how now was a great time to buy but refreshingly it never came. Instead we were informed that 10 years ago was a great time to buy and in 10 years time, 2008 will have been a great time to buy, but as regards this year compared to next - it’s all down to consumer sentiment and that, we were told, is down to us. (Sorry, Marian but that’s far too much responsibility!)

And that was it; either a small increase or a small decrease and no-one knows which. You could sense the disappointment in those who thought that she would provide a definite answer or tell them that a 20% drop was on the way. But I think that a lot of people were satisfied with having been given an informative clear rundown on the market (along with a free pen and key-ring).

Putting myself in the shoes of a fresh-faced first-time buyer who has little background information or understanding of the property market, I would have been very impressed with the evening and would have left confidant that Sherry FitzGerald are good people to do business with.

And that’s the real sell. Though many of these people will be considering all homes, and therefore dealing with whichever agent happens to be selling their home of choice, I’m pretty sure who they’ll go when they become vendors.
It’s all about the "customer for life" approach.

A Buyer’s Market?

According to everyone in the industry, I’ve happened upon a great time to enter the property market. Comments from estate agents and pundits are constantly reinforcing the message that now is the time of the cheeky offer and that opportunities abound for the savvy investor.

But I’m not an investor - I’m a wannabe homeowner. This curtails my house selection somewhat as a good price is not the only characteristic I’m looking for.

To be clear, I’m looking for a large two-, or small three-bed house in any one of about four areas relatively close to the city centre. My budget is, according to all the latest reports, ample enough for me to secure such an abode.

However, I’m increasingly finding that in the time of the buyer, no-one’s selling - at least not at realistic prices.

If I sought an unoccupied apartment on the outskirts of Dublin, or a newly built house in the commuter belt, I would surely profit from the much publicised drop in prices. However, I’m discovering that this drop in prices isn’t being consistently applied to second-hand homes in prime locations.

The main reason for this seems to be that I’m trying to buy from those standing one rung further up the property ladder. In the same way that my mortgage approval sets pre-defined limits on my spending power, the price originally paid by vendors for their home and the equity it represents for them sets limits to what they will expect and can accept – and today’s prices appear to be too low to many of them, at least the ones I’ve been dealing with.

So if no-one’s selling, are prices actually dropping? Reading the Sunday Times ‘Home’ supplement yesterday, I was given the news that, in one of my target areas, the two-floor over basement houses have dropped by 30%. But the Sunday Times admits that this evidence is anecdotal and based on the opinions of agents. The scientific reality I’ve experienced is that facing a price of cut close to 30% combined with record rental incomes and a prediction that the market will begin to pick up in a year, vendors are more likely to consider becoming landlords than selling below their expectations.

So the pattern I’m following begins with a suitable house coming on the market at a mid to late 2007 price. Upon contacting the agent, I’m told that while the vendor may accept a slightly reduced offer, if they fail to achieve close to the asking price, the property will go for rent.

So if nothing’s selling have prices actually dropped? Is ‘buyer’s market’ just a positive way to describe a stagnant market, or does it just depend on what you’re buying?

If the Sunday Times based their information on sales agreed and achieved prices, I’d guess that the number of these houses sold with almost a third slashed off their prices would constitute too small a sample size to be taken seriously by any statistician.

And, I’m worried that this anecdotal evidence feeds the market stagnation. If you’re told by your Sunday newspaper that the single property you own has dropped by 30% in the last few months, you will surely be less likely to put it on the market, whereas a keen purchaser like myself may judge it as only having fallen by 15% in value.

This is like the few (but much publicised) houses in South County Dublin that sold after a €100,000 drop in price - suddenly anyone in the neighbourhood with plans to move thinks again.

At some point a needy vendor of a probate sale will fall into my lap, but realistically I expect to be house-hunting for quite some time. During this time, my sympathy will lie with the estate agents who are arranging and attending so many viewings for houses that will probably end up being up for rent.