Tomorrow may have been dubbed Blue Monday, but when it comes to the property market, the forecast is that the blues will extend well beyond January. Already just three weeks into 2011, Permanent TSB has signalled a 0.5% rise in interest rates.
There will be a degree of discrimination on the part of lenders in terms of location: KBC Bank and the ICS Building Society say they will require much larger deposits on rural homes compared to property in the capital or main cities.
Falling prices are the most direct signaller of a declining market. The ESRI published its house price index for the final quarter of 2010 last week, showing the average national house price is back to early 2002 levels.
Experts are no longer talking about the proverbial 'bottom of the market', while stark new phrases have entered property speak such as 'distressed selling', 'segmentation' and 'containment of risk'. So, the Sunday Tribune asked a number of market experts about what changes, if any, may emerge over the coming months.
Will the government finally introduce The National Property Price Register?
The Bill is scheduled to return to committee stage on Tuesday, according to the department of Justice, Equality and Law Reform. "The minister is anxious to have the final and concluding stages of this legislation enacted in law prior to the forthcoming general election," said a spokesperson. The delay is due to necessary amendments required for the Property Services (Regulation) Bill 2009, but when these are made, sale price data will be available for publication at regular intervals. But with the general election now set for 11 March, it will be interesting to see just how much will exists in forcing this legislation through. As it is, the public remains in the dark about the eventual selling price of any property, adding further uncertainty to the market. Also to consider is that the emergence of distressed sales of repossessed homes will mean even less clarity over valuation. "By not having repossession sales factored in, a price floor is set that shouldn't be there," says Karl Deeter of Irish Mortgage Brokers, adding that there are almost 12,000 households who have not made any mortgage repayments in over a year.
Prices will decline – but by how much?
No-one can pinpoint an actual figure, but the latest ESRI house price index shows that in the last quarter of 2010, (October to December) there was a marked drop in price of 3.5% (as compared to a reduction of 1.3% in the early autumn). ESRI economist Dr David Duffy says the outlook for property remains very subdued for the coming year.
"When lowered incomes, job losses and the net outflow of people from the country are factored in, the factors driving demand will remain very weak. While affordability has certainly improved, it's unlikely to translate through to significant demand and this will lead to a further decline in prices."
The decrease is now estimated at 38% from the peak of 2006 with the average price for a house nationally €191,776, and the average price in Dublin at €237,480. As these are averages, the decrease since the peak is much more like 50% in certain areas. Along with the segmentation increasing between rural areas and cities, the difference between apartments and houses is being seen in a more realistic light in the context of price also. Frank Conway, economist with Irish Mortgage Corporation, says that difference is recognised elsewhere. "When I lived on Rhode Island, for example, an apartment would be 60% of the value of a three-bedroomed house - you would never expect to pay the same for each."
With investors gone from the market, the decline in sales of apartments is one of most noticeable results of the market crash. Michael Grehan, managing director of Sherry FitzGerald, says activity in the first-time-buyer market will demonstrate this factor even more noticeably. "There is no doubt that, previously, houses and apartments had been quite close in price. But now that affordability has improved dramatically for first time buyers, they are able to bypass what would have, during the boom years, been their first purchase - an apartment - and move straight to buying a two or three-bed house."
How much tighter will the criteria for getting a mortgage become over the year?
Sherry FitzGerald notched up almost 1,000 transactions last year, says Grehan. "That would have realised about €450m. Not all of that was cash, with well over three-quarters borrowed - which shows that people were able to draw down loans." But there is no doubt that stress testing of applicants will become even tougher this year.
"The new Central Bank mantra is 'containment of risk', forcing institutions into even tougher lending criteria," says Frank Conway.
Both AIB and Bank of Ireland are lending up to 92%, while KBC are back lending again at up to 90%. In theory.
In reality, there is very little lending going on, as documentation is scrutinised so stringently. The people most affected will be young borrowers, adds Conway. "Lenders will want to know how applicants saved the necessary deposit. But if you are paying rent, and perhaps having a bit of parental support, the lender will compare that with ability to repay a mortgage. It gives an indication as to how you manage money. All of which makes the evidential support of bank statements, and all other documentation even more crucial.
"The ability to prove job security is also set to become more of an issue. The people who lost their jobs but gained re-employment are most likely on rolling contracts – which is not permanent employment, so applicants have to get around that too."
The ESRI estimates that more than 10,000 people will emigrate in the next two years - all of which affects the property market, particularly the loss of those young first time buyers who would normally prove the most active sector.
For those who really have to sell this year, is there a good time?
"Go when you are ready," says Grehan, bolstering his conviction by saying the agency has already registered over 300 new buyers to their existing list, spread across different price brackets.
"The traditional selling periods are radically changed, and it's become less seasonal," he says. "For some vendors, it may be better to hold off till the garden looks better, for others, there may be no real merit in waiting till later - only to discover that is when the greatest number of properties come on the market. It very much depends on what is being sold. And it might be wiser to go to the market in February when there is less competition. I tend to look at St Patrick's Day marking a division, and as Easter is much later this year, it may suit people to get in before that holiday."
The changes in stamp duty may also mark a change in the trading up market and that may increase activity. Previously, some owners only did it for status reasons, says Grehan, but now it's for the practical needs of growing families. "Transaction costs are lower, and with a market correction in price, plus the reduction in stamp duty, trading up will become more available again."
A marker on the calendar for May/June is the second big national property auction by Real Estate Alliance (REA).
The first such event was held last April. Back then, the organisers had hoped to sell at least 50% of the 61 lots, but on the day only 16 properties were signed off on (27%) realising a total of €3.9m. A similar mass auction had been planned for last September, but was postponed due to the ongoing banking crisis and lack of consumer confidence. Pat Riney from REA says he sees a more stable property market emerging after the general election, with buyers "who don't need much in the way of borrowing", being attracted to the auction. "We are also getting international interest, mainly from the UK, France and Germany, and where the financing is obviously not being arranged in Ireland."
Will the Deferred Interest Scheme really help borrowers struggling to meet mortgage payments?
Karl Deeter is unconvinced. "The Deferred Interest Scheme will be a total failure," he says. "It's overly complex, it doesn't actually save the person that much. I don't believe our policymakers here are superior to their counterparts in the UK and in the US where similar schemes have been tried but failed."
Deeter also believes banks are set to take a tougher stance against the 70,000 borrowers now in difficulty.
"If 10% of that figure were acted on, you could see 7,000 homes repossessed and put on the market as distressed sales. The only thing stopping banks taking back property at the moment is political pressure. Banks can avail of a receiver of rent clause in which they can claim the right to receive any rent paid. I believe this year will be a wash-out on the credit side. Fixed rates will be gone, while funding gaps in Irish banks during the year will cause significant delays in draw-downs."