According to Britain’s largest property portal Rightmove.co.uk sellers need a ‘reality check’ when selling their according to a story published by Reuters. In the UK the unsold property stock has reached record proportions, currently it is seeing 35,000 per week come online, rightmove have about 90% of the property listed on the market on their site so it’s an even better indicator than our own versions which would be daft.ie and myhome.ie.
They have said that people need to embrace ‘smart pricing’, here we have taken to calling this ‘priced to sell’ or ‘price adjustment’ but in the end of the day the message is clear, drop your prices if you want to sell. The interesting aspect of the rightmove analysis is that many of the people advertising property are trading up and although they want to buy at a bargain they want to sell for the highest price attainable, its an interesting juxtaposition.
I think we are seeing the same thing in Ireland with sellers hoping for high prices while also seeking out only bargain basement options when they are buyers. We have been telling people for some time the ways and methods for finding property bargains in the current market, if you want to buy cheap Irish property then there are methodical ways of going about it. Our analysis tends to focus on the financial aspects, if you want to look at the building/structural aspects that will involve a different professional such as a surveyor or architect, however let financials be the first acid test. Property financials are unfortunately often down the pecking order of importance with many people, even experienced investors, however, if you want to be a recession buyer you’ll need to brush up your calculator skills and do the numbers because if the numbers don’t add up you should avoid the deal like it was a plague infested leper at your door.
Property prices in Ireland fell 7.3% in 2007, and because of that we will need to see a reharmonization in seller expectations versus buyers willingness to pay. The credit crunch has meant that many mortgage products are being curtailed, of note is the basic demise of 100% mortgage for the majority of first time buyer applicants, this means that deposits need to be saved, something that many buyers were able to avoid for the last few years, having said that many of those same buyers are now finding themselves in a position of negative equity. Negative equity in Ireland is a reality for many of the newcomers to the property market, however it is really only a major issue if you cannot afford your loan, or you have to sell right now, otherwise, in the long term – and remember that mortgages are typically taken out over the long term- you can be hopeful that prices will recover at some point in the future. I feel like I mention in every second post that the worlds population is huge and expanding fast, 10% of all people ever alive are alive right now, that means that if the trend continues that we will need to house people, and for that reason property is not facing an eternal demise, present demise yes but you can bet your bottom dollar that phoenix will rise from the present term flames.
I like to look at it like this, in the Louisiana purchase Manhattan Island was bought for $24. If you forward this for inflation its still insanely cheap, so the difference between the actual price and today’s price is the rise in value, we did have skyrocketing values here for a decade, in fact it really got out of control and couldn’t continue. That doesn’t mean land is a banger forever though, the old adage ‘God makes more people but he doesn’t make more land’ still holds true, however the cheap rates of post dotcom America and Europe are what paved the way for the current bubble.
The way this recession will play out is largely in the hands of private business, the Fed bailout is making news, indeed I write about it all the time, but recovery has to start at grass roots and work its way up, I think that Obama is likely to be the next president of the USA and that his leadership will make some big changes (worst case scenario is that he might bring some disgrace on an office that was once hosted by such luminaries as Richard Nixon and George W. Bush). A foreign policy that is less oil-hostile will be of benefit and if the oil rich countries can try to distribute some of their wealth in a more meaningful way that would also make a massive difference to the safety of supply. But oil is not to blame for property, it is part of the greater economic downturn but not at the root of things. It is however, what has Americans screaming blue-murder.
The Irish aspect of the recession is that we will see job layoffs start to happen by companies who are being hit at a macro-economic level such as Irish Life and Permanents CHL arm in the UK. Indeed two banks have closed due to a non-availability of funding namely Fresh Mortgages and Stepstone, then Springboard had their funding pulled by Lehman Brothers and now they will have to self finance as well (Springboard are part of the IL&P group). Bear Stearns is likely to cut staff numbers here in Ireland, this will mean that the Easter egg for a good few highly skilled financial workers may be on their face.
The main employer in the state is actually enterprise, that being firms with less than 50 people in it, so hence the grass-roots analogy of trade and enterprise being the sector that will come to the rescue, large multi-nationals can pull out at any time, enterprise tends not to do this, so perhaps now is the ideal time for the Government to really embrace an entrepreneurial culture? In any case it will give us something to talk about other than property prices!