herald

Sunday 20 August 2017

Differences in house price figures say one thing - buyer beware

Reports of rising property prices outside of Dublin should be treated with caution.

While the ripple effects of the property price recovery have begun to spread out from the capital, many parts of the country are still suffering from a chronic over-supply of housing.

The price of a three-bedroomed semi rose by 30pc in Co Cavan in the year to September, according to the Real Estate Alliance group of estate agents. REA estimates that the average price of a semi-detached home has risen by 21.6pc nationwide over the past 12 months and by 24.2pc in Dublin.

Prices have risen strongly in all of the major provincial cities with prices in Cork rising by a massive 28pc.

However, the best performer was, believe it or not, Cavan where the average price of a semi jumped by 30pc over the past year.

CAUTION

Yes, the property price recovery has begun to spread out from Dublin, but many parts of the country still have a huge over-supply of new houses dating from the Celtic Tiger era.

The REA figures make this clear with prices in counties Tipperary, Waterford, Limerick, Kerry and Monaghan all rising by less than 5pc since the beginning of the year.

The REA figures only include three-bedroomed semi-detached homes. While this has the advantage of comparing like with like, the traditional semi-d represents a declining proportion of the total housing market. With the number of properties, including semis, being traded still at minuscule levels it might be wise not to read too much into these figures.

They also seem to be at least partially at odds with the figure being published by the CSO.

According to the CSO, house prices outside of Dublin rose by just 5.8pc over the past 12 months.

This is less than a quarter of the level of increase being indicated by the REA figures. The disparity between the CSO and the REA figures is, on the face of it, enormous and needs to be properly explained.

Rather than publish the report in full - as, for instance, property price daft.ie does with its quarterly survey of rents - REA has chosen instead to release the "edited highlights" in a press release.

This is highly unsatisfactory with figures for nine-month and one-year price increases being quoted interchangeably.

Apples and pears spring to mind. Rightly or wrongly, it's difficult to resist the suspicion that by publishing its data in this way, REA is picking and choosing the details which best suit its argument.

These presentational problems notwithstanding, there is no doubt that the property price recovery, which began in Dublin 18 months ago, has now spread to other parts of the country.

Cork, Limerick and Galway are now all experiencing strong property price recoveries. Runaway price increases and such practices as "gazumping" aren't confined to Dublin.Which may not be a bad thing.

A recovery that was confined to Dublin and the commuter counties on the east coast would not have been sustainable. If it was to last, the property price recovery had to grow deeper roots, something that is now happening.

But don't kid ourselves. Large parts of the country are still suffering from a massive over-supply of Celtic Tiger-era new builds. While the problem of "ghost estates" is gradually being resolved, many small towns and villages - particularly in the upper Shannon region - have more than enough new houses and apartments to meet their needs for decades to come.

Even where the property market has begun to recover, the volumes of properties changing hands remains minuscule. Last year, a mere 27,000 houses and apartments changed hands.

recovery

At current transaction levels each one of the country's almost 2 million houses and apartments can expect to be sold once every 73 years. The property price recovery will only be for real when rising prices can be sustained at much higher transaction levels.

In a normal market, properties should change hands once every 20-30 years - about 65,000-100,000 transactions a year. We are still a long way off reaching that point.

While there has been some recovery in bank lending this could well be choked off by the Central Bank's proposed new mortgage lending criteria, which are due to come into force at the beginning of next year.

For would-be homebuyers it's still very much a case of buyer beware.

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