Will House Prices Fall in Ireland Due to Coronavirus?
No-one knows the final effect the coronavirus will have on Ireland’s property market. But a question many are asking is how will it affect house prices?
We look at some of the possible outcomes based on the key factors influencing the housing market.
Read on to discover what they are.
Right now, a common question being asked by Irish homebuyers and sellers is just how great an effect the coronavirus will have on property prices.
Parallels have already been drawn between the current crisis and the housing market crash that followed the economic slowdown of 2008.
Nobody wants a recession repeat. But with mortgage affordability an ongoing issue in Ireland, there are some who naturally wonder whether a slight dip in the price of a home could make the coming months a better market for first-time buyers?
Key Factors in Property Pricing
Realistically, there are several key factors that affect property price tags at any time. And whether the COVID-19 pandemic will have a deep impact on them is a matter of waiting to see.
But if purchasing a property was on your to-do list this year, then it is important to examine property price factors in light of all the possible outcomes at the end of the coronavirus crisis.
Doing so will help you make a better informed and prudent decision.
Key Factor #1: Housing Market Supply and Demand
If the demand for homes increases faster than the supply, then house prices rise. Conversely, if demand decreases then house prices fall.
Currently, demand is decreasing.
Housing transactions in Ireland have been struggling since the early days of the nationwide lockdown. Many estate agents reported buyers backing out of purchases as well as sales being delayed.
In March, the number of property sales slumped by 24% down from a January high of 3,492 to 2,618.
Whether that downward trend will continue into April and beyond is unknown.
Sellers Pulling Out of Market
Of courses, supply is the flip side of demand, and many sellers are thinking twice about putting their properties on the market right now.
According to one report conducted by Trinity College, the number of properties available to buy in March is down almost 12% year-on-year.
If more sellers follow that route, it may result in a shortage of saleable properties.
If buyers remain reluctant to purchase, demand for residential properties will continue to decrease which could force property prices down.
What if Demand Outstrips Supply?
However, if sellers start pulling properties off the market and demand, even while lower than usual, outstrips supply, then this could result in property prices actually rising.
In addition, Ireland’s housing supply is already in shortfall.
The Central Bank specified that Ireland needs to build 34,000 new homes per annum for the next 10 years to meet the demands of the growing market. But the target for 2020 was 25,000 new builds.
Now, with many building sites closed under lockdown rules, that target might not be met.
Key Factor #2: Employment
Demand for housing is dependent on income, and income is dependent on employment.
The more people taking home a secure weekly wage, the greater the percentage who’ll eventually put it into property. And this can hike up the price of a home.
Thousands of Jobs Lost to coronavirus
However, though Ireland created over 330,000 jobs in the last five years, already thousands of positions have been lost to the coronavirus.
According to a recent analysis undertaken by financial advisory firm EY, if the disruption caused by COVID-19 is prolonged for up to six months, Ireland could be left with a final job loss tally 318,000.
A less alarming scenario could still see 177,000 people without work by the time the disruption ends.
IF EY is on the nose with either of these figures, a large number of people will be pushed out of the housing market.
Even those in relatively secure jobs may be discouraged from entering the market due to a knock-on fear of losing their livelihoods later on.
And with fewer buyers, house prices may fall in the long term.
The Government’s Support Schemes May Help
That said, the Irish government has ramped up its range of financial support for laid-off workers.
These include the new COVID-19 Pandemic Unemployment Payment that was recently raised from €203 to €350 and a Temporary COVID-19 Wage Subsidy.
This latter scheme supports employers in paying their employees during the current pandemic.
The hope here is that employers will be able to retain employees with the payment paid through payroll systems and that once the crisis is over, both employers and employees can bounce back to ‘business as usual.’
The effect of doing so may minimise individuals’ financial insecurity and, as a consequence, not negatively influence their house-buying behaviour.
Key Factor #3: Economic Growth
Directly related to employment is economic growth. The longer economic activity is curtailed the less confident people will feel about spending.
Unfortunately, there is no timeline for the end of the coronavirus.
But when the current containment measures are finally relaxed and life begins to return to normal, economic growth will be predicated on a number of factors:
- The types of policies that were implemented to support people financially and otherwise during the crisis;
- What stimulus has been put in place to jumpstart the economy;
- How quickly jobs and incomes are recovered;
- How traumatised businesses, households and individuals have been by the events of the coronavirus and whether this will push them to be extra-cautious in their financial behaviours.
The latter point is particularly relevant to the housing market; If people don’t want to risk taking out a mortgage, property price tags could take a tumble.
The Irish government acted swiftly to implement policies that put the country on an “economic pause” rather than a straight road to recession.
While such benefits are no replacement for job security, they are helping thousands sustain themselves during the pandemic.
And, along with payment holidays and interest-free business loans available from the country’s big five banks, they may lessen the impact of unemployment for many.
A Quicker “Bounce Back”
This, in turn, may help people bounce back more quickly when the crisis ends, encouraging continued spending and averting, among other issues, a downward slide of property prices.
OECD: Ireland Least Damaged by Lockdown Measures
Also, according to a report published by the Organisation for Economic Co-operation and Development (OECD), Ireland’s economy is predicted to be the least damaged by the strict coronavirus lockdown measures than any other OECD country.
Economic activity here will likely reduce by approximately 15% in comparison to other countries, many of which are heavily reliant on tourism and could suffer a drop of up to 35 % in economic activity.
The report does highlight real estate, alongside retailers and wholesalers as the main sectors taking a hit.
However, the fact that the economy may, on the whole, experience smaller initial effects from containment measures, could cushion the blow to consumer confidence and encourage a relatively quick recovery of the property market.
Key Factor #4: Mortgage Availability
Another key factor that affects property sale and the price of a pad, is mortgage availability.
For the last five years, that’s been particularly relevant to Ireland.
The Central Bank’s 2015 decision to cap mortgage lending at three-and-a-half times annual salary has long prevented many first-time-buyers from getting a foothold on the property ladder.
A Return to Confidence in Early 2020
However, according to the BPFI mortgage approval activity in February increased in volume terms by 4.5% year-on-year. And of the 3,514 mortgage approvals, many of them were, in fact, first-time buyers.
This signaled a returning confidence to the market following the uncertainties caused by Brexit and the long haul out of the 2008 recession.
It was reflected in the prices buyers were paying for properties too: House prices in January had witnessed a 2% rise on December 2019.
But by the end of February when concern and uncertainty around COVID-19 began to double-down, average sale prices slipped 4% from €292,871 to €280,433.
March Offered More Moratoriums than Mortgages
Additionally, the main news around mortgages in March was not about approval numbers but the fact that Ireland’s ‘big five’ banks - AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank – were offering mortgage moratoriums and a variety of other supports to help house owners alleviate the financial pressure of COVID-19.
According to the Banking & Payments Federation Ireland (BPFI), over 28,000 customers availed of the mortgage breaks in the first week of the country’s closure.
This will amount to an unprecedented amount of mortgage back payments when the crisis calms. And alongside all the other financial challenges that Irish citizens are facing right now, it could conspire to make it particularly challenging for many to purchase large mortgage loans in the foreseeable future.
A reduction in mortgage availability caused by the backlog of payments to be made on current coronavirus-induced mortgage moratoriums may, in turn, result in a reduction in demand. And without demand, house prices could fall.
Also, many had hoped that the Central Bank’s rule on lending would be relaxed in 2021, allowing even more first-time buyers to bustle their way into the market. But the likelihood of this happening in the wake of the coronavirus is now slim.
March saw a slight 1% rise in house prices. But the drop in transactions recorded by real estate agents and the shift in banks from signing off mortgage approvals to organising mortgage holidays will likely have brought any continuing upturn to an abrupt halt.
Progress in First Quarter Wiped Out?
Whether that will result in a steadying of prices or as Davy Stockbrokers latest report suggests, will wipe out all progress the housing market was making in the first quarter of the year, is still unknown.
What is certain is that the future of Ireland’s housing market is fragile. And even if housing prices do start to plunge, it may not be advisable to buy, particularly if the economy remains stagnant too.
Time to Wait and Watch
However, the policies currently been implemented by the government could ensure a swift economic restart. And that will help the property market get back on track.
For the moment, we must wait and watch. After all, as we’ve already witnessed - a week is a long time in coronavirus.
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