Demand for homes sparking mini-frenzy, but not quite a bubble

Demand for homes sparking mini-frenzy, but not quite a bubble

It is still many peoples' dream to buy their own home

There has been a lot of talking up about the property market since the start of the year but Minister for Finance Michael Noonan tried to bring some calm to the situation earlier this week when he said there was no second bubble emerging.

Perhaps he has a point. While urban areas such as Dublin, Cork and Galway – not to mention other sizeable towns around the country – are struggling for stock, it is that issue more than any other which is driving up prices.

People do want to buy. It is still an ambition of many to own their own home but most people want what is considered the ideal, i.e. a 3 or 4 bed in an attractive location with good local facilities such as schools etc.

That has meant that a miniature bubble has formed in key areas of cities. Whereas once there was a natural trading up movement to the market, a combination of negative equity and unwillingness to give up on tracker mortgages means that the choice available is now slim.

In the ever-popular Dublin 4, for example, there are just 134 properties for sale right now. When a maximum amount of €500,000 is set that search reduces to almost half that at 70. Considering virtually every property in this area is now selling for above its asking price, you could even cut another good few from that list.

Even leaving that aside, when you cut out the likes of apartments that list dwindles once more to just 36 properties. Again, when you set a search option of a minimum number of bedrooms to three, the selection available tumbles to just 11.

Now a lot of people wouldn’t have €500,000 to spend to begin with but it’s just a small example of how little actual choice there is for those looking to buy at present. There are a growing number interested in owning their own home though and these people are almost competing ferociously now to win bidding wars.

Unfortunately the power still lies with cash buyers. While banks will tell you they are lending more – with Irish Banking Federation figures showing that the number of mortgages approved in February was up 36% on the same month last year – the reality is slightly different.

Just because a mortgage is approved doesn’t mean it will be drawn down and even if someone finds a house within their price range there is no guarantee that the bank will agree to its purchase or that it won’t be taken out of their price range when bidding starts.

In the period from October to December last year, banks lent €896m in new mortgages but this was actually down 10% on the same period of 2012.

Some commentators have tried to accuse banks of trying to prop up house prices and there may be a bit of truth in this. Rising house prices reduces the capital banks will need to cover the cost of bad mortgages.

Of course, there are other issues – supply being paramount – but as desperate as some are to get their hands on a home, it’s better to be patient and prudent than jumping in at the deep end.

There are 14 comments for this article
  1. Corrella at 1:19 am

    Fiscal considerations may also constrict supply. The bursting of the property bubble created opportunities for tax planning. Where properties were the main asset property in a deceased’s estate, financially competent and fleet-footed executors could register the equity in the property to the beneficiaries, who could then avail of the tax losses created by the precipitous fall, thereby mitigating future CGT bills on other assets. But some executors were caught like lamped rabbits, retaining devalued assets in administration and effecting disposals through executor sales, simultaneously locking in the capital loss and depriving the beneficiaries of tax relief; these same executors could not protect the value of the administered property assets by e.g. applying for planning consent in administration, since no mandate exists for speculative development. Beneficiaries of these estates might reasonably object to any such sales on grounds of common sense. A good example is Corrella, Greystones, where the property has been stuck in administration for just these reasons and objections since 2010. A price of €2500000 was sought in 2011, reduced to an asking price of €1750000 in 2013, but an offer of €1760000 was rejected by the beneficiaries who would not consent to an executor sale.

  2. Meh at 2:59 am

    The Banksters are up to their old trick again, they are trying to drive up the price of property to make it worth their while to repossess peoples homes.

    As you quite rightly point out, approval does not mean that the loan will ever be drawn down, in reality the number of approvals are ‘up’ the number of actual draw-downs are down. The banks hope by issuing approvals buyers will start bidding higher amounts for property thereby creating another property bubble.

    Have a look at what Dr. Constantin Gurdgiev say about mortgage approvals here:
    http://trueeconomics.blogspot.ie/2014/03/2832014-irish-mortgages-approvals.html

  3. Theresa at 8:38 pm

    I have my property on the market for over a year now, I live in south Kilkenny. No queue forming at my house
    🙁

  4. Emanuela at 12:04 am

    Ok I understand there is low supply and the causes may be many (banks not lending, negative equity, tracker mortgages, no new homes in areas where people want to live), but generally the first rule of economics is “price is a function of supply and demand” and if demand is more than supply then prices will go up…so – unless the causes of low supply are all lifted and the balance shifted on the supply – it is expected that demand will continue to be unmet and prices will contine to increase.

  5. gerard at 9:10 pm

    we need propper eco homes for people in the future, built by some honest housing authority an not built by the corrupt bad system that we have had to put up with for the last 80 years. That way the price of houses can be regulated for the honest person who wants to live a normal life

  6. Peadar at 5:01 pm

    Government housing policy – or lack thereof is appalling. Do politicians never learn. No they do not – because most of them are on 90 k a year plus.The majority of 3/4 bed houses are being bought by cash buyers and most of them are investing in the rental bubble.Rent is expedentially increasing and those on lower incomes, who can not afford to buy a house and have to rent are once again going to get screwed in a vice.
    There needs to be a coherent housing policy- such as in GERMANY where there are caps on rent in any area. Starter houses could easily be built on much of the nama land providing people with a basic accommodation at a low price. Under 100k. This is achievable. There was a time when a Labour party put low income couples and families first. Now they prefer to sit by and allow them to struggle.
    The current government have not got the ability to think outside the box.

  7. Fluffy at 4:14 pm

    Firstly, Alec, get off your highhorse and dont be such an ignorant d*pshit. I have lived in Dublin all my life, I was born here, all my family are here, so YES I do have a right to stay in my hometown, I wont have the likes of you telling me otherwise. Secondly this article is bang on, we are looking for a home at the moment and have been since the strat of the year, everything described here is 100% true annd correct. WE have witnessed houses going 50k over the asking price in Dublin and the ouskirts into Kildare. Bidding wars have become the norm, the government are sitting back and laughing, this means more tax for them in the form of stamp duty, the banks are laughing because when the market hits its peak or near enough to it they will release all the properties they have been sitting on and sell to the highest bidder. WHY we have an obsession with selling overpriced houses to each other is beyond me

  8. Michael at 3:09 pm

    Sheep are supposed to be fleeced and roasted !

  9. Pamela murray at 1:52 pm

    I think the government should do what the Turkish do in some parts of turkey you cannot buy property or a bussness unless you buy with a Turkish person that way people can’t come in and buy all our property for cash and it would help the Irish to get back on there feet

  10. Dave at 12:51 pm

    True for Greystones as well – substantial price increase in last two years and “over-bidding” seems to be back – but it excludes out-of-town Celtic Tiger developments.

  11. Helen Stewart at 12:32 pm

    It seems now that builders are buying properties, sitting on them while prices rise and then plan to make a profit. We are cash buyers and still have no chance of buying with the competition out there

  12. Moho at 12:31 pm

    Great article.i agree lack of supply is driving the increase but the increase is also being fuelled by the banks actions, Nama driving up rents and not releasing properties for sale and in no small way the estate agents who are trying to compete to get these houses on their books and hence advise vendors of higher prices.i live in castleknock and this is very apparent here.

    Even new builds won’t release their prices as they trying to create frenzy and getting people to register their interest.

    Rents too are flying up. I know of 2 properties in the dublin 15 area.one going from 1400 to 1850 pm and the other 1100 pm month to 1550 pm. One of these is in Nama? It’s all so wrong.

  13. Jack Feeney at 12:25 pm

    Complete BULLSHIT article playing on the fears of People but hopefully Irish people will see through it…..

  14. ALEC at 11:56 am

    People need to be told there is no houses and if you want one it will be outside Dublin as No1 has the right to live in Dublin as people seem to think they have a god given right to live in Dublin and should be given a house. How about like the most of the country get up off your a**, get a job and buy a house. And dam right houses are more exspensive in dublin as they should be as hello to all it is the capital and house’s are more exspensive in Capital cities around the world. Brings back the old days where people actually earned what they had and not like now a days where people expect and think they are entitled to this and that..

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